If you run your own business in the UK, you might be wondering whether you can employ your spouse or civil partner. The short answer is yes, but there are important rules you need to follow. Spouse employment in small business can offer real tax advantages for your household when done correctly. However, HMRC takes a close look at these arrangements, so you need to make sure everything is above board.
In this guide, we’ll explain everything you need to know about employing your spouse, from the legal requirements to the tax benefits you could enjoy.
Key takeaways
- Employing your spouse is legal if they do real work and receive a fair salary.
- Pay up to £12,570 tax-free (personal allowance) and between £6,500 and £12,570 to avoid National Insurance contributions.
- Register as an employer with HMRC if your spouse earns above £6,500, even if they are your only employee.
- Maintain proper payroll with PAYE, keep clear records, and have Employer’s Liability Insurance if you run a limited company.
- Employing your spouse’s salary reduces taxable profits and can lower your overall tax bill.
This article has been updated and republished on 03 November 2025 to include the latest 2025/26 tax year updates on employing your spouse in the UK, including changes to tax allowances, National Insurance limits and employer registration rules.
Can you legally employ your spouse?
Yes, it’s perfectly legal to employ your spouse or civil partner in your business. Many small business owners do this, particularly when they need help with administration, bookkeeping, customer service or other essential tasks.
However, HMRC has strict rules to prevent people from using these arrangements purely to avoid tax. Your spouse must be a genuine employee doing real work, and you must pay them a fair salary for what they do.
What are the requirements?
When you employ your spouse, you need to treat them exactly like any other employee. Here’s what you must do:
1. Give them a real job
Your spouse must perform actual, necessary work for the business. This could include:
- Managing the books and invoicing
- Answering phone calls and emails
- Handling social media and marketing
- Processing orders and dealing with suppliers
- General administrative tasks
The key word here is “genuine.” HMRC can investigate if they suspect your spouse isn’t really working or if the role seems made up just for tax purposes.
2. Pay a reasonable salary
The salary you pay must match the work your spouse does. You can’t pay them £30,000 a year for answering the phone once a week. HMRC will challenge any payments they think are excessive or unrealistic for the duties involved.
Look at what you would pay someone else to do the same job. That’s a good benchmark for setting your spouse’s salary.
3. Set up PAYE
If your spouse earns above certain thresholds, you must operate a PAYE (Pay As You Earn) scheme. This means deducting income tax and National Insurance contributions from their wages and paying these to HMRC.
For the 2025 tax year, the Personal Allowance is £12,570. If your spouse earns less than this and has no other income, they won’t pay income tax. However, you still need to run payroll properly and report their earnings to HMRC.
4. Register as an Employer
If your spouse’s earnings go above the National Insurance Lower Earnings Limit (£6,500 for 2025), you must register as an employer with HMRC. This applies even if you only have one employee.
5. Pay the Salary
This might sound obvious, but you must actually pay the salary to your spouse. The money should go into their own bank account, not a joint account. This creates a clear audit trail and proves the payments are genuine.
You also need to record these payments properly in your business accounts.
6. Keep proper records
You should maintain clear employment records, including:
- A written job description
- Records of hours worked
- Payslips
- Payment records
- Any employment contract
These documents will be essential if HMRC ever questions the arrangement.
7. Get Employer’s Liability Insurance
If you run a limited company, you’re legally required to have Employer’s Liability insurance, even if your only employee is your spouse. This covers you if your employee gets injured or becomes ill because of their work.
Sole traders aren’t legally required to have this insurance, but it’s still worth considering.
What are the Tax benefits of employing your spouse?
Employing your spouse can reduce your household’s overall tax bill in several ways:
Using the Personal Allowance
If your spouse has no other income, you can pay them up to £12,570 (for 2024/25) without them paying any income tax. This is their tax-free Personal Allowance.
For example, if you’re a higher-rate taxpayer earning £60,000 and your spouse doesn’t work, paying them £12,570 means:
- They pay no income tax on this amount
- You reduce your own taxable income (if you’re a sole trader)
- Your limited company reduces its taxable profit by £12,570
Lowering your Household Tax Bill
If you pay 40% tax on part of your income but your spouse pays 20% (or nothing), shifting some income to them reduces the total tax your household pays.
Let’s say you earn £55,000 and pay your spouse £10,000. You save 40% tax on that £10,000 (£4,000), and your spouse pays 0% or 20% on it. The overall tax saving can be significant.
Reducing Corporation Tax
For limited companies, your spouse’s salary is a business expense. This reduces your company’s taxable profit, which means you pay less Corporation Tax (currently 19-25% depending on your profits).
National Insurance Considerations
Paying your spouse between £6,500 (Lower Earnings Limit) and £12,570 (Primary Threshold) means:
- They pay no employee National Insurance
- You pay no employer National Insurance
- They still get credit towards their state pension
Pension Contributions
You can make tax-deductible pension contributions for your spouse. If your business pays into a pension scheme for them, this reduces your company’s taxable profit and helps build their retirement savings without creating a tax charge.
Partnership vs Employment: Which is better?
If you’re a sole trader, you have another option: making your spouse a business partner rather than an employee.
Partnership Advantages:
- Much lower National Insurance contributions
- Your spouse becomes a co-owner of the business
- Profits are split between partners
Partnership Disadvantages:
- Your spouse becomes liable for business debts
- More complex to set up and run
- Requires genuine partnership involvement
Employment Advantages:
- Simpler to manage
- Clear employer-employee relationship
- Your spouse has limited liability
Employment Disadvantages:
- Higher National Insurance costs on larger salaries
- More payroll administration
The right choice depends on your situation. Speaking to an accountant can help you decide which structure saves you the most tax.
Common mistakes to avoid
Paying too much: Don’t pay your spouse £40,000 for basic admin work. HMRC will spot this and could disallow the expense.
No real work: Your spouse must actually work for the business. Paying them for doing nothing is tax evasion.
Poor record keeping: Keep detailed records of what your spouse does and when they’re paid.
Using Joint Accounts: Always pay your spouse’s salary into their individual bank account.
Ignoring PAYE: Even if your spouse earns below the tax threshold, you still need proper payroll records.
Conclusion
For many small business owners, employing a spouse makes perfect sense. If your spouse genuinely helps with the business and isn’t using their Personal Allowance elsewhere, the tax savings can be substantial.
However, it must be a legitimate arrangement. HMRC is wise to artificial setups designed purely to avoid tax. As long as the work is real, the salary is fair and you follow the rules, employing your spouse is a perfectly legal and effective way to reduce your tax bill.
Before making any decisions, speak to a qualified accountant. They can look at your specific circumstances and advise on the most tax-efficient way to structure your household’s income.
Frequently Asked Questions
1. Can I employ my spouse if they have another job?
Yes, but you’ll need to make sure their tax code is correct. If they’re already earning above the Personal Allowance in their main job, they’ll pay tax on what you pay them. You should use a BR (basic rate) or D0 (higher rate) tax code for their second job.
2. How much should I pay my spouse?
Pay them a fair wage for the work they do. Check what similar roles pay in your area. For maximum tax efficiency with minimal administration, many businesses pay around £9,100 per year (below the National Insurance threshold but above the Lower Earnings Limit).
3. Do I need a written employment contract?
It’s not legally required but it’s highly recommended. A written contract, job description, and records of hours worked help prove to HMRC that the employment is genuine.
4. What if HMRC investigates?
If HMRC questions the arrangement, they’ll want to see evidence that your spouse does real work and the salary is reasonable. Keep detailed records of their duties, hours worked, and payments made. If everything is legitimate, you shouldn’t have any problems.
5. Can my spouse be a director instead of an employee?
Yes, if you run a limited company, your spouse can be a director. Directors can take a small salary plus dividends, which can be more tax-efficient than a larger salary. However, they must have genuine director responsibilities.
6. Will employing my spouse affect their benefits?
It might. Earnings from employment could affect means-tested benefits like Universal Credit or Tax Credits. Check how their earnings will impact any benefits they currently receive before setting up the employment.
7. What happens if we separate or divorce?
If your relationship ends, you’ll need to handle the employment situation carefully. Your spouse will have the same employment rights as any other employee. It’s worth including provisions in your employment contract about what happens if your relationship changes.
8. Can I backdate my spouse’s employment for tax purposes?
No. You can only claim tax relief for periods when your spouse genuinely worked for the business and was paid. Trying to backdate arrangements to claim tax relief is fraud and HMRC takes this very seriously.
