As the UK’s tax burden hits record highs, self-employed workers and company directors are searching for legitimate ways to reduce what they owe to HMRC. One increasingly popular option, according to accountants, is to employ your spouse or partner — a move that can legally cut both income tax and corporation tax bills while boosting family finances.
Rising income tax, National Insurance, and dividend tax rates have squeezed household budgets, while businesses are feeling the pinch from higher employment costs. For entrepreneurs running their own limited companies, bringing a partner into the business — even part-time — can unlock significant savings.
If your spouse or partner is not fully using their personal tax allowance (£12,570) or is in a lower tax band than you, paying them a salary from your company can help distribute household income more efficiently.
They must have a genuine role in the business — for example, handling admin, bookkeeping, marketing, or client communications — and the salary must reflect the work they actually perform.
“You should be mindful of the salary you pay. It should reflect the right amount for their role, just as any other employee,” says Tom Minnikin, partner at specialist tax firm Forbes Dawson.
From a tax point of view, it often makes sense to pay up to the personal allowance threshold, meaning they’ll pay no income tax while still receiving National Insurance credits.
Alternatively, you could make your spouse a shareholder, allowing them to receive dividends. These are taxed more lightly than salary income, with the first £500 tax-free, and further amounts taxed at just 8.75% for basic-rate taxpayers.
Accountancy firm Forbes Dawson estimates that a business making £100,000 in profit could save around £12,000 a year by employing a spouse who hasn’t used their personal allowance.
That’s because part of the higher-earning partner’s income can be “shifted” to the spouse, using their unused allowances and keeping both within lower tax bands.
Businesses also benefit. Salaries paid to spouses are deductible expenses, which reduce corporation tax. If your business qualifies for the Employment Allowance, worth up to £10,500, you can even offset part of the employer’s National Insurance contributions.
Employing a spouse can also help with pension planning. If they earn more than £10,000 a year, they must be enrolled in a workplace pension, which can provide additional tax relief.
“As a business, you can declare pension contributions as an expense, lowering your corporation tax bill,” says Pippa Vick, financial adviser at The Private Office.
“If your spouse isn’t working elsewhere, employing them increases the amount they can contribute annually. Without qualifying income, they’re capped at £2,880 a year (topped up to £3,600 by HMRC). With employment income, that limit rises significantly.”
Employment also builds National Insurance credits, helping them qualify for a higher state pension later in life.
The same approach can work for sole traders, though the setup differs. You can hire your spouse as an employee through a PAYE scheme, paying them a fair salary for their work, which can be offset against your business income for tax purposes.
Alternatively, you could form a partnership or limited liability partnership (LLP), splitting profits between both partners. This allows each person to take advantage of lower tax bands and personal allowances.
Whatever the structure, accountants warn that HMRC will expect clear evidence that your spouse genuinely works for the business. That means keeping a written contract, accurate payroll records, and paying them through an official payroll system.
Employing your spouse or partner isn’t just a creative tax-saving strategy — it can make sound financial and operational sense for small business owners. By sharing the workload, distributing income efficiently, and taking advantage of tax-free allowances, a couple can save thousands of pounds a year while strengthening their household finances.
As Minnikin puts it: “Any situation where there’s a difference between the tax rates of each spouse offers scope for sensible tax planning. With the right setup, both the business and the family can win.”
