More than 60% of UK businesses are family owned. You can employ any family members in your business and take advantage of the lower tax rates and personal allowances that may be available to your spouse, civil partner, or children. In turn, this arrangement can help reduce your household’s overall tax bill.
However, there are some rules that apply:
- You must avoid special treatment in terms of pay, promotion and working conditions
- Tax and National Insurance contributions still need to be made if eligible
- Working time regulations for family members under the age of 16 have to be abided by
- You must have employer’s liability insurance that covers any young family members
- If they are eligible for a workplace pensions scheme, this has to be offered.
- They must be paid at least the National Minimum Wage
Employing family members can be a fantastic way of tax planning, especially if you work for your own limited company.
You could employ a family member and pay them up to £157 a week before becoming liable to pay National Insurance. This would simultaneously reduce your taxable profits and in turn, reduce your Corporation Tax liability as a company.
On top of this, you can also make family members shareholders and pay them dividends out of company profits. Dividends can be paid for up to £5,000 per anum without becoming liable for the tax. However, beware that if a family sells their shares they may become liable to pay Capital Gains Tax.
Whilst employing a family member may seem like a good idea remember that:
- Family members still have the same rights as any other employee, for example, an employment tribunal.
- Family disputes may get in the way of a working environment
- If you also employ non-family members, they must be treated equally to your family members.
- HMRC will scrutinise income given to family members – paying your 14-year-old child £25 an hour to wash dishes won’t go down well with HMRC.
- The family member should be suitable for the job role or you may be doing your business a disservice.