“Married couples are missing out on £1.3 billion by ignoring tax break” reported the Metro last week on the subject of the Marriage Allowance. 2 million couples are missing out on a tax break of up to £230 per household.

Given that the vast majority of our readers are self-employed directors, is this a tax break you should be claiming? Or does this highlight an opportunity to restructure your affairs to give your household an additional tax break of up to £16,100?

What is the Marriage Allowance?

There are two tax benefits now open and that you can claim if you’re married or you’re in a civil partnership. Which one applies to you depends on when you and your spouse or civil partner were born.

If one of you was born before 6th April 1935, you can claim the Married Couple’s Allowance. With the Married Couple’s Allowance, depending on you and your spouse or civil partner’s income, you can claim back between £326 and £844.50 in the tax year.

If both of you were born after this data, you can claim the Marriage Allowance.

To qualify for this, one of you has to be earning less than £11,500 a year and the other not more than £45,000 a year (£43,000 in Scotland). If this is the case, then the lesser-earning spouse or civil partner can transfer £1,150 of his or her personal allowance to the other, creating a tax saving of £230.

To apply for the Marriage Allowance, please click here.

Before you do that…

Here at Burton Beavan, our job is to save you, your household, and your business as much money as we possibly can.

The Marriage Allowance is OK. £230 is better than nothing, but it’s not going to boost your lifestyle that much.

If your spouse or civil partner is not a shareholder or director/employee of your firm but plays an active part in the running of your company, now is a good time to sit back and think about whether it’s worth reflecting that in your business’s share register. We think it is, this is why we think it is, and here’s how we can help you go about that.

Double up on your allowances

As you know, every single taxpayer in the UK gets a personal allowance of £11,500. That’s money that attracts no income tax whatsoever. It attracts a bit of National Insurance but not that much (less than 4% of £11,500).

As you also know, every director has a dividend allowance of £5,000 a year. That’s up to £5,000 a year a director can pay him- or herself in dividends before they pay any tax.

So, if there are two of you who are directors/employees and shareholders, you can take home £33,000 a year with no income tax, no dividend tax, and only a little bit of National Insurance.

If there’s only one of you in the business, you can’t take advantage of the Employment Allowance. That’s a scheme for your company where the first £3,000 of National Insurance Employer’s Contribution is paid for by the government.

If Employment Allowance is not available to you, you can try to use up any remaining dividend allowance you might have because the 19% you’ll pay in corporation tax will be cheaper than the up to 25.8% cost of National Insurance Employer’s and Employee’s Contribution.

If there’s two of you, you can claim Employment Allowance.

And if you can claim it, both pay yourself right up to the £11,500 personal allowance limit. You’ll both pay in total £800.64 in employee’s National Insurance. However, you’re both paying it to yourselves as salary so that £800.32 combined with the National Insurance Employer’s Contribution means you can reduce your profitability by £1,267.68 which lowers your corporation tax bill. Even better, the Employment Allowance will mean that you save money because that will cover the National Insurance Employer’s Contribution on both of your pay (unless it’s been used up elsewhere).

This makes sense

Instead of benefiting by just £230 a year, restructuring your affairs to make your spouse or civil partner an employee/director and shareholder will save you multiples of what you’d save with the Marriage Allowance.

Burton Beavan caveat – please make sure that your spouse or civil partner does actually do work for your business and that it can be shown that they do work if you want to go down this route. It’s not unknown for HMRC to investigate companies with this structure and if they disagree that your spouse or civil partner is not a real director or employee, then you could face an additional and large tax bill.

Let’s talk this through

Want to find out more about how to do this? Call the Burton Beavan team on 01606 333 900 or email us at hello@burtonbeavan.co.uk.