Extracting Money From The Family Business

Pay a salary to a spouse

An efficient way to reduce a company's tax bill is to pay a small salary to the director's spouse. But care must be taken to ensure payments do not fall foul of 'settlement rules'. If you want to pay your spouse, then keep the payments sensible, or else HMRC will take an interest and want to see that they've earned it.

Salaries must be paid into the spouse's own bank account (no access by the director) and appropriately recorded as a payment to another employee. You will also need to run a PAYE payroll and comply with RTI requirements.

Outright gifting

As long as the spouse (or child over 18) has complete control of a gift (either money or assets) then you won't be caught by the settlement rules because you are not retaining an interest in it.

The need to have 'whole rights' to dividends, voting, capital and be able to wind up the company. If HMRC believes the director has any control over the gift then they will not allow the tax saving.

Distribution of dividends to a spouse or children

Director shareholders are able to pay dividends to themselves on profits the limited company generates. If you wish to pay a dividend to a spouse or child, each individual must have ordinary shares in the company and the size of the payment is generally based on the size of the shareholding.