Employing your spouse...what to keep in mind.

The idea of employing your spouse in your business can give rise to many advantages, but care needs to be taken in relation to how this is set up. There are many advantages to employing your spouse in your business; the greatest one is usually flexibility in terms of working hours! The fact that there is a direct personal and financial interest in the success of the business has a huge impact, although many businesses do not recognise the value of services provided by the ‘non-principal’ spouse, so the question of even a basic wage is never considered...Consider these questions to see whether this is something relevant to you:-

• Is your spouse assisting you in the business in an 'invisible' way – perhaps answering phones, taking orders, keeping the books, filing tax returns, doing payroll or indeed simply acting as a company director (more on that below)?
• Has a comprehensive list of what your spouse does ever been drawn up, or are diaries kept? Perhaps have them keep a diary for a month or so, which should give a good indication of the type of work they are doing, and how long it typically takes them to do it.
•  There is an intrinsic value in having someone available at times when you are not, does your spouse fill this description? When business contacts deal with your spouse, do they consider that they are still dealing with the business itself?
• If your spouse is a company director, this is a significant role of itself, as your spouse cannot delegate this responsibility to you. They are fully responsible for the activities of the company. No-one else would carry this responsibility for no pay, why should your spouse?

You may feel that your business cannot afford to pay your spouse – but perhaps wages or a salary could be accrued in your company accounts until times are better or more cash is available. This acknowledges the value brought by your spouse. No-one else would do this without payment! Some pointers for doing this:-

• Have a contract of employment drawn up for your spouse to include a full description of the role carried out by them
• Agree a structured payment and notify Revenue of the position. There are tax savings that can be generated by doing this, rather than having all allowances and credits claimed through one spouse.
• Do consider whether there are PAYE issues to be addressed. Bear in mind the impact of the USC which takes effect for anyone earning more than €77pw.
• In light of recent pension changes, consider whether it might be useful to have a separate pension structure for your spouse.

The bottom line here is that if you are going to do something, do it in a way that brings maximum benefits, taking care of all the details. Last thing anyone needs is a debate with Revenue over whether a spouse’s salary is justified!

If any of these issues are relevant to you and you would like more details please call (01) 6611022 or email justask@independent-trustee.com

Sonia McEntee

PRSAs and USCs – How not to do it!

The PRSA was introduced to increase private pension coverage - it’s a consumer-friendly product, very transparent, mobile and above all flexible.

Both an employer and employee can contribute to a PRSA and from an employer perspective there is no need to create a group pension fund. Employers, particularly multinationals, had started to favour PRSA’s as a part of an overall remuneration package.

In the context of pension schemes, employer contributions to PRSAs are taxable on the employee as a benefit-in-kind. However, the employee could claim tax-relief up to the normal age-related pension limits, so in general there was no tax liability arising.

With the passing of the 2011 Finance Act, which saw PRSI extended to certain types of pension contributions, and the introduction of the Universal Social Charge (USC), the unfortunate employee, with a PRSA as his company pension vehicle, gets hit with a double whammy - the employer and the employee contributions are subject to both PRSI and USC.

As employer contributions are treated as if they were made by the employee and effectively added to the pay of the employee, employer contributions to a PRSA now attract a USC liability ranging from 2% of the first €10,036 up to 7% on sums over €16,016 plus PRSI of 4% (on amounts over €127 per week).That’s an 11% hit on pension contributions for virtually all employees on monies they will not be receiving until they retire.

Meanwhile employer contributions to a self administered pension scheme are, quite rightly, not subject to either the USC or PRSI.   

The impact of a potential 11% hit on PRSA contributions by an employer was probably unintentional.  However it will very quickly kill that market.

An example of how not to do it – we live in hope that the new government will realise the damage that is being caused and reverse the Finance Act changes.  

Paul Gilmer