You’ll probably find that your spouse is nearly always involved in some shape or form in the running of your business so there should be no difficulty in justifying a salary payment for income tax purposes. For PRSI purposes a person who is directly employed by their spouse is not considered to be in insurable employment so no Employers PRSI payments are due. By putting these salary payments through as expenses on your business, this can help reduce the overall tax due on the business profits and at the same time retaining the same income with less tax payable within the family.
Employing your spouse in your business would give them an income, which of course is taxable. However, a spouse can earn income up to €23,800 and only pay tax thereon at the 20% tax rate. If you pay Income Tax/PRSI/USC at the top rates this will yield an annual tax saving of approximately €5,500 for the year.
Some businesses lend themselves better than others to employing young children of the owner in carrying out genuine work for the business e.g. small supermarket stacking shelves, shops etc. In other cases it is not unusual to find that children are more technologically advanced than their parents and will often provide assistance to parents who work from home in dealing with computers, emails, typing etc!
Once a child performs a genuine task for the business and is paid a normal salary then that salary cost qualifies as a normal tax deductible expense for the parents business. No PRSI charges are due if the child is under 16 years of age or if over 16 carries out the work at home where the business is carried on. The childs salary will be liable for the USC charge but at the lower rates.
Most of us pay our children pocket-money in some shape or other, so just think – you can now get value for this money. Also if the children are working alongside you, then you are able to keep an eye on them while getting on with your business!
A WIN-WIN situation all round!!