Hiring your spouse or partner can be a smart way for a microbusiness to stay compliant while making better use of household income — but it only works if the role is genuine and the paperwork is right. Over the years I’ve helped many microbusiness owners do this properly: save on National Insurance, reduce taxable profit and build simple payroll routines that don’t create headaches with HMRC. Below I share a practical 5-step plan I use with clients, plus the pitfalls to avoid and the admin you must keep up.

Make the role real and justifiable

The most important rule is this: the job must be a genuine job. I can’t stress this enough. HMRC will look beyond the family relationship to check whether duties are performed and whether the pay reflects the market for the work.

Start by writing a short job description that explains the day-to-day tasks, expected hours and the business outcome you expect. Typical spouse roles that stand up to scrutiny include:

  • bookkeeping and invoicing (if they have the skills)
  • customer service and order fulfilment
  • marketing support — social media scheduling, copywriting
  • shop or stall assistant in retail/hospitality

    • Note: You should avoid contrived or purely nominal jobs. If the role looks created solely to divert income, HMRC can reclassify payments as drawings or disguised remuneration.

    Set a fair, market-rate salary

    Decide a salary that matches the work and hours. It should be reasonable compared with what another business would pay for the same role. I usually benchmark using job sites (Indeed, Reed), small-business Facebook groups, or simply asking local businesses. Don’t forget to think hourly rate vs fixed salary — microbusinesses often favour an hourly agreement for part-time support.

    Why salary matters: paying a modest salary can reduce the business’s taxable profit (if you’re a sole trader or a limited company) and can move income into a spouse’s personal tax bands. It can also create savings on National Insurance contributions if structured correctly and kept within thresholds — but you must check current HMRC thresholds and rates.

    Register as an employer and run payroll correctly

    If you pay your spouse a salary, you must treat them as an employee — register as an employer with HMRC before the first payday. That triggers PAYE (Pay As You Earn) and Real Time Information (RTI) reporting. You’ll need to:

  • register as an employer on HMRC’s website
  • set up payroll software or use a payroll provider (Xero Payroll, QuickBooks Payroll, Sage or third-party payroll bureaus)
  • check right-to-work documents and keep a copy
  • run payroll, submit RTI reports each payrun and issue payslips

    • Small businesses sometimes try to slip by without payroll, but that’s riskier than the modest time saved. Payroll software is inexpensive and helps avoid calculation errors — and it keeps a clear audit trail if HMRC asks for evidence.

    Understand National Insurance, Employment Allowance and pension duties

    Where many owners get confused is in how employer and employee National Insurance (NI) interact with other reliefs:

  • Employee NI: Your spouse will pay employee Class 1 NI if earnings exceed the primary threshold. If you pay a salary below that threshold, they won’t pay employee NI, but PAYE still needs to be set up.
  • Employer NI: The business pays employer Class 1 NI on earnings above the secondary threshold. That’s where some savings may be possible.
  • Employment Allowance: Many microbusinesses can claim Employment Allowance to reduce employer NICs (this used to be up to a fixed annual amount). However, there are exclusions — notably, you cannot claim if your only employee is a director. If your spouse is an employee (not a director) and you meet the eligibility rules, Employment Allowance can offset employer NICs.
  • Auto-enrolment pension: Even small employers must comply with workplace pension duties if employees meet age and earnings criteria. You’ll need to check staging date guidance and set up a pension scheme if applicable — this can add employer pension contributions on top of NI, so factor that into your pay decision.

    • Because rates and thresholds change, I always tell clients to check the current HMRC guidance or ask their accountant before fixing a final salary. In many cases the sweet spot is a salary that uses the spouse’s personal allowance or stays below NI thresholds where practical and compliant.

    Document hours, duties and performance — treat it like any other hiring

    Keep simple records: a signed contract (even a short one), a timesheet or work diary, payslips, and invoices if you use a contractor model for some tasks. If your spouse is paid monthly for agreed hours, keep a basic timesheet and a note of tasks completed. That evidence is what protects you if HMRC queries the arrangement.

    I also recommend a trial period clause in the contract (e.g., one month) so you can check the fit. Treat payroll filings, PAYE payments and pension contributions with the same rigour you would for any employee.

    Common questions I get asked

  • Can I pay my spouse in dividends instead? If your business is a limited company and your spouse is a shareholder, dividends are an option. Dividends don’t attract National Insurance but aren’t an allowable expense for the company, and they only make sense if the spouse is actually a shareholder and the company has distributable profits. Also, dividends must be paid in proportion to shareholding. Mixing salary and dividends is often the most tax-efficient approach, but it depends on your circumstances.
  • What if my spouse already helps informally? Turn that informal help into a formal job only if the work is regular and measurable. Sporadic help paid as casual “thank you” payments looks like drawings. Formalising helps with transparency and long-term planning.
  • Can HMRC challenge family employment? Yes — if the role, pay or hours appear artificial. Evidence of real work, a market-rate salary and proper payroll is your defence.

    • Practical checklist before you start

  • Write a clear job description and set expected hours
  • Benchmark pay against local/industry rates
  • Register as an employer with HMRC and set up payroll software
  • Check Employment Allowance eligibility
  • Consider pension auto-enrolment duties
  • Sign an employment contract and keep timesheets
  • Run payroll, submit RTI, issue payslips and keep records
  • Review annually — adjust pay as duties or hours change

    • Quick comparison table: salary vs dividends (high level)

    AspectSalaryDividends
    NIEmployee & employer NI may applyNo NI on dividends
    Allowable expenseYes — reduces company taxable profitNo — paid from post-tax profits
    Works best whenSpouse performs real work and hoursSpouse is shareholder & company has distributable profits

    If you’d like, I can look at your numbers and run a simple scenario to show whether a spouse salary, dividends or a mix makes the most sense for your business. I usually run through payroll cost, NI, pension implications and likely net household income so you can see the trade-offs before committing. Drop me the broad details (business type, ownership, current profits, estimated hours) and I’ll sketch a practical next step for you.