Employing your children in your business
If you have a backlog of work to deal with over the summer holidays, claiming a tax deduction for employing your children in your business might be a good way of keeping bored teenagers gainfully occupied!
Employing your children is an effective method of passing cash on to them while at the same time reducing your tax bill and getting someone else to perform business admin.
The main considerations when employing your children
As your children's employer, you are entitled to claim tax relief on your children’s salaries. However in order to ensure there are no issues with the taxman you should be aware of the following:
- You must take care that the salary you pay them reflects the duties that they are carrying out. If HMRC think that your children’s salaries are excessive they will disallow the expense of employing them - as in the tax case of Dollar v Lyon (see here).
- You’ll need to ensure that your children are employed at National Minimum Wage rates - currently £4.05 per hour for under 18s (non-apprentices). You can see all of the rates here - although bear in mind the National Minimum wage does not apply to children under the school leaving age.
- You can actually employ your children from age 13 and over although there are some restrictions you need to be aware of - broadly speaking the work must be safe, not involve heavy lifting (lever arch files don’t count as far we are aware!) and is subject to strict maximum working hours. We’d recommend you check out the details here just to be on the safe side.
- If you’re considering employing some of your children’s friends (and fellow students) you need to be aware that the old payroll systems have altered. Previously you could submit a P38(S) to ensure no tax was deducted for employees earning over the threshold over the holidays only. This no longer applies and now all students will need to be treated like all other employees, having tax and national insurance deducted when their earnings exceed the thresholds in any one month.
Other factors to consider when employing your children
Whilst it’s not mandatory to register your children as employees if they are earning under the National Insurance Lower Earnings Limit (£113 per week for 2017-18), you may wish to register and document all payments just to be on the safe side and just in case an HMRC enquiry rear its ugly head.
You should also be aware that as your children will technically be employees of your business, they are potentially caught by pensions auto-enrolment. There are some nasty penalties for non-compliance if this point is overlooked. You can find out more about pensions auto enrolment here.
Our eBooks cover this and many other topics. Check them out here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].