Can I pay my spouse or partner through my limited company — and is it tax-efficient?
Direct Answer
Yes, you can — but it must be done correctly. You can pay your spouse a salary for genuine work they do for the company (at a market rate), or issue them shares so they receive dividends. Both are legal and can be very tax-efficient — a spouse with no other income has their own £12,570 personal allowance and £500 dividend allowance. HMRC scrutinises this arrangement; you must have genuine commercial justification for any payments.
Two ways to involve your spouse
Salary
Spouse must do genuine, documented work for the company
Pay must reflect the market rate for that work
Salary is deductible against corporation tax
Keep records: job description, hours worked, bank transfer evidence
Dividends (via shareholding)
Issue shares to your spouse — they become a shareholder
Each person's £500 dividend allowance + £12,570 personal allowance used
No NI on dividends
HMRC's "settlements legislation" may apply — see below
Tax saving worked example
Director earning £80,000 through company. Spouse has no other income.
Without income splitting
Director takes full £80,000 — significant higher-rate dividend tax liability
With income splitting
Director takes £50,000 — uses personal allowance + basic rate band
Spouse takes £30,000 — uses their personal allowance (~£0 tax)
Estimated annual saving: £5,000–£8,000
The settlements legislation risk
HMRC's "settlements legislation" (S.625 ITTOIA 2005) can disallow income splitting if:
The shares carry no real risk (e.g. the spouse could be bought out at any time)
The arrangement lacks commercial reality
The spouse has no genuine involvement or ownership
The Arctic Systems case (Jones v Garnett, 2007) established that ordinary shares held by a spouse are generally not caught by settlements legislation — provided they are genuine shares with normal rights. Use ordinary shares, not a special income-only class.
What triggers HMRC scrutiny
A spouse paid an implausibly high salary for minimal work
Shares issued to a spouse at the time the company suddenly becomes very profitable
Payments to a spouse with no documented role or work record
Large dividends to a non-working spouse on shares acquired at nominal value
Practical steps to do this correctly
Take legal advice on share issuance (or use your accountant)
Update the company register and issue a new share certificate
File the change at Companies House via the next confirmation statement
Keep records of any work your spouse does — a simple log is sufficient
Pay a salary that is justifiable based on actual duties and market rate
Income splitting done correctly can save thousands.
Autobooks advises on shareholder structure and family tax planning as standard — from £89+VAT/month.