Private practice involves more than just seeing patients and writing reports. There will be an office to run, an appointment diary to keep, equipment to maintain, and forms to fill in. All these tasks could be performed by a freelance office assistant, or by your spouse.

Employing your spouse in your private practice reduces the amount of profits that are subject to tax and keeps the income within the family. However, you must pay your better-half an hourly rate appropriate to the work undertaken. To arrive at this rate ask a freelance office assistant to quote for the tasks required. Reduce the quoted rate by say 50% to take out the tax and risk elements which do not apply to an employee.

Next, calculate the average number of hours spent per week or month on your practice administration. This can be tricky but a rough diary note made at the time is good evidence that the work was done, should the Tax Inspector ever seek to challenge the amount paid. Finally, pay the wages due from your business bank account into your partner’s own account, which ideally should be in his or her sole name. For your private practice to achieve a tax deduction for these costs the wages must be actually paid, rather than just moved between accounts by a paper entry in the books.

If the wages paid amount to over £84 per week (£87 from 6 April 2007) the payments should be recorded through a PAYE scheme so your spouse can receive free National Insurance credits. You as an employer do not have to deduct tax or National Insurance until the weekly wage exceeds £97 (£100 from 6 April 2007). The National Insurance credits allow your spouse to build up an entitlement to the State Pension. Remember if your spouse has other earnings then they will be liable to tax on the monies paid to them.

As an employer of your spouse you can also pay contributions into a pension scheme on their behalf. As long as the total value of the pension contributions plus their wages are a reasonable reward for the work preformed, the pension contributions will also be tax deductible from your private practice earnings.