Employing Your Spouse in Your Business 2026/27: Tax Rules and Pitfalls

Why business owners consider it

If your spouse has little or no income and does real work for your business, paying them a wage can be tax-efficient. It moves taxable profit from you, possibly taxed at 40%, into their hands where it may fall inside the Personal Allowance and be taxed at nothing.

The key word is genuine. HMRC allows a deduction only for costs incurred wholly and exclusively for the business. A wage for work that is not really being done, or far above the commercial rate for the role, can be challenged and disallowed.

The wholly and exclusively rule

To stand up to scrutiny, a spouse's wage should be:

• For actual work, such as bookkeeping, admin, customer service or marketing.
• At a market rate for that work and those hours.
• Paid in reality, not just recorded on paper, ideally into the spouse's own account.
• Supported by records of duties, hours and rate.

If you would pay an unrelated person the same amount for the same job, you are on solid ground.

A worked example

You run a profitable consultancy as a sole trader and expect profits of GBP 70,000 in 2026/27, putting GBP 19,730 of that into the 40% higher-rate band above GBP 50,270.

Your spouse has no other income and genuinely does 8 hours a week of admin and bookkeeping. You pay them a commercial GBP 12,000 for the year.

• Your taxable profit falls by GBP 12,000, all of it coming out of the 40% band, saving 40% income tax plus 2% Class 4 NI on that slice.
• Your spouse receives GBP 12,000, which is below the GBP 12,570 Personal Allowance, so they pay no income tax.
• Employee Class 1 NI for them starts at GBP 12,570, so GBP 12,000 is below that point and incurs no employee NI.

The household keeps far more of the GBP 12,000 than if it had stayed taxed in your hands at the higher rate.

Mind the National Insurance thresholds

Wages bring payroll obligations. For 2026/27 the employer pays Class 1 NI at 15% on earnings above GBP 5,000, so a GBP 12,000 wage does create some employer NI even though the employee pays none. The Employment Allowance of GBP 10,500 can offset employer NI for eligible businesses, but single-director limited companies with no other staff usually cannot claim it.

Common pitfalls

• Paying a round sum with no link to real duties or hours.
• Forgetting to operate PAYE and report through payroll where required.
• Confusing wages with dividends; only genuine shareholders can receive dividends, taxed with a GBP 500 allowance then 10.75% at basic rate.
• Assuming the Employment Allowance always applies when it may not.

The bottom line

Employing a spouse can be a legitimate and effective way to use a second Personal Allowance, but only when the work and pay are real and commercial. Document everything and run proper payroll.

Use the calchub.uk salary and self-employed tax calculators to model the saving across both partners, and check the wholly and exclusively rule, payroll duties and Employment Allowance conditions on gov.uk before you set a wage.