Spouse Salary Planning: Cut Tax and NI in Your Limited Company

Why Paying Your Spouse Makes Tax Sense

As a limited company director, you have the flexibility to employ your spouse or civil partner and pay them a salary for genuine work they carry out for the business. This strategy works because each individual has their own Personal Allowance (£12,570 for 2026/27) and their own set of National Insurance thresholds. By splitting income between two people, you can dramatically reduce the combined tax and NI your household pays.

HMRC is fully aware of this planning technique and it is entirely legal — provided the salary reflects real work being done. The key rule is that the payment must be commercially justifiable. You cannot pay a spouse £30,000 a year to occasionally answer emails.

The Optimal Salary Level for a Spouse With No Other Income

For a spouse who has no other employment income, the most tax-efficient salary in 2026/27 typically falls into one of two bands:

• £6,500 to £8,060 per year (below the Secondary NI threshold): At this level, neither the employee nor the employer pays any National Insurance. The salary is also below the Primary Threshold, so no employee NI is due. The company still gets corporation tax relief on the salary as a business expense.
• Up to £12,570 per year (full Personal Allowance): If your spouse has no other income, they can earn up to £12,570 without paying any Income Tax. However, both employer and employee NI become payable above the Secondary and Primary thresholds respectively. You need to weigh the NI cost against the extra corporation tax saving the larger salary generates.

For most directors, paying a spouse between £9,100 and £12,570 strikes a good balance — the corporation tax deduction at 25% often outweighs the NI costs, particularly where the spouse is genuinely involved in the business.

What Counts as Genuine Work?

HMRC can challenge spouse salaries under the settlements legislation if the arrangement appears to be a simple diversion of the director's income rather than payment for real services. To protect yourself, make sure your spouse is actually performing tasks such as bookkeeping, invoicing, customer communications, social media management, or administrative support. Keep records including a simple job description, timesheets or work logs, and evidence that the salary is paid through the company payroll.

Setting Up the Payroll Correctly

Your spouse must be added to your company's PAYE payroll. You will need to register them with HMRC as an employee, deduct the correct Income Tax and NI (if applicable), file Real Time Information (RTI) submissions each pay period, and issue payslips. If their salary stays below the Lower Earnings Limit (£6,500 in 2026/27), you do not need to pay NI but you should still run payroll to maintain a formal employment record and protect their State Pension entitlement.

The Dividend Angle

If your spouse also holds shares in the company, they can receive dividends on top of their salary. Dividends are not subject to NI and benefit from the Dividend Allowance (£500 in 2026/27) before tax kicks in. Combining a modest salary with dividends can be highly efficient, but share structures must be set up carefully — ideally before the company starts trading — to avoid the settlements legislation applying to dividend payments as well.

Points to Watch

• Employment Allowance: If you qualify, the £5,000 Employment Allowance offsets employer NI costs, making higher spouse salaries even more attractive.
• Auto-enrolment: If your spouse is aged 22 or over and earns above £10,000, pension auto-enrolment duties may apply.
• Benefit in Kind: Any non-cash benefits provided to your spouse (such as a company phone or laptop) must be reported on a P11D unless they qualify for an exemption.

Spouse salary planning is a straightforward and powerful tool — but the paperwork and commercial rationale must stack up. If you are unsure, speak to an accountant before putting your spouse on the payroll.