Can I employ my spouse in the company?
We are frequently asked by contractors if they can employ their spouse for work completed as part of the limited company.
In many cases, the spouse will be a director of the company and may provide a certain level of back office support/admin work/book keeping etc.
The first thing to note is that paying a spouse a wage for working in the business is allowable and is the same as employing any other employee. The employment should be registered with Revenue and PAYE, USC and PRSI should be levied on the wages paid to the spouse.
How much should I pay my spouse?
Where your spouse carries out duties within the company, a salary commensurate with the “going rate” should be paid.
The key question here is how much the “going rate” is? A good way to work out a wage for your spouse would be to ask yourself “how much would I state as a salary if I was to advertise this role?”
What rate of PRSI will my spouse pay?
A person who is directly employed by their spouse is not considered to be in insurable employment so no Employers PRSI payments are due, therefore, they will be liable to Class S PRSI.
In the latest budget it was announced that Jobseeker’s Benefit will be extended to people paying class S PRSI or seen as self-employed people in late 2019.
Would my spouse be entitled to the Employee tax credit?
The employee tax credit is not available to a person who works in their spouse’s business in which their spouse owns more than 15% of the share capital, however, they will be entitled to the Earned Income tax credit.
Is my spouse obliged to file an Income Tax return?
If your spouse owns more than 15% of the share capital in the company and has control over its operations, they will be required to file an annual Income Tax return with the Revenue Commissioners. In many cases we will already be filing this if you are jointly assessed.
Can Revenue review wages paid to a spouse?
Yes – There are some areas that Revenue review to ensure this is not used by taxpayers for tax avoidance purposes. Revenue have recently released a new manual on the issues they encounter when reviewing this type of employment.
The main things that they will look at is that the net pay is actually paid to the spouse by the business. This is to prevent an employer putting through an employment purely to lower their tax bill without actually paying the salary to your spouse.
The second main issue that Revenue review is the amount of wage paid to the staff member and whether or not this is in line with the experience and qualifications of the spouse. The number of hours worked would also be reviewed to see if it is reasonable.
The key to staying on the right side of Revenue while employing a spouse is to make sure that the wages are paid wholly and exclusively for the purposes of the business. It is typical for self-employed individuals to engage a spouse in the business and to pay them for work undertaken. For example, it is common practice for a spouse to be paid a sum for their involvement in the day–to-day running of the business. Such activities may include administrative duties relating to scheduling of appointments or job estimates, telephone answering, bookkeeping, banking, etc.
Where can I find more information?
If you need more information on the rules surrounding payments to a spouse/family member take a look through Revenue’s Leaflet Part 04-06-23.