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Paying dividends to spouses: Avoid the tax traps!

Shared from Tax Insider: Paying dividends to spouses: Avoid the tax traps!
By Iain Rankin, August 2021

Iain Rankin shows how spouses can benefit from splitting company shares, as well as the traps to avoid. 

Many one-man companies utilise their directors’ tax-free allowance by paying them a small salary. With proper planning, the director incurs no income tax or National Insurance contributions (NICs), while the company receives corporation tax relief. 

Directors can duplicate this process with a non-earning spouse, gaining tax relief on two salaries. For the spouse’s salary to qualify as a company expense, they must take an active role in the business and cannot receive a wage purely for their marital relationship; otherwise, the tax relief could be invalidated. 

The workaround? 


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