A very good (tax!) argument for bringing spouses and other relatives into the business is that they then also get to utilise their tax-free Personal Allowances and lower tax bands. Frequently this is done on a salaried basis but the self-employed also have the option to take on a business partner. If a person paying 40% tax brings his or her spouse (who has no other income) into the business, they can save over £4,000 in tax just by utilising the second Personal Allowance. Likewise for children. But remember that they must do valuable work in order to ‘earn’ a salary, otherwise HMRC will say the income really ‘belongs’ to the first spouse. HMRC arguably finds that more difficult with profit-shares between partners.
Families and business – why keep it all to yourself?
Updated: Sep 7, 2020