Salaries and dividends,husbands and wives - that old chestnut!!

[Welsh Translator]

I have been in self-employment as a translator for the last 8 years and have decided to incorporate. My wife will be joining me in the company as an equal shareholder since she too is a translator. She will continue to work 2 days a week for another employer once our company has been formed. Since I have already used up my personal allowance for this year and don’t want to have to pay the additional NICs, I would like to take only dividends from the company for the remainder of this financial year. From next April onwards the company will be paying me about £6,000 in salary. My wife will not be taking a salary this year or next year since she will have used up her P/A through her other job. We will both continue to take out dividends on the profit. I have a question about this please:

Since I will be receiving a salary as of next year (£6,000), should I also be paying my wife a salary (even though it would prove far less tax-efficient due to the NICs), in order to “confirm” that she is making a full and equal contribution to the business which would justify her dividend and avoid the Arctic Solutions scenario or a similar one (even though HMRC lost that case)?


I don’t know whether I misunderstood another post on this forum (P35 and P14 for dividends only director) but can I pay my wife £6000 through PAYE and not have to pay NICs, i.e. only basic rate tax or does her total income from our company AND her other job have to be taken into account?
Thank you very much in advance. I have discussed it with my accountant, who didn't seem to find a problem with it, but I wanted a second opinion please.

[Tom McClelland]

You can earn up to £5715pa in each job that you have without paying NICs.

For a director that figure is reduced pro-rata if the appointment to directorship was after the start of the tax year.

[Welsh Translator]

Thanks very much, Tom. In that case we will both draw a low salary starting this year, with that salary being lower than the pro rata figure for a director since the company is being formed after the start of the tax year.