Employing Family Members: The Rules and the Savings
Putting your spouse or children on the payroll can be smart and legitimate.
As long as you follow the rules.
By Tom Fisher, Client Manager
Employing a family member in your business can be perfectly sensible and tax-efficient, but HMRC expects it to be genuine. Get it right and it works well. Get it wrong and it invites a challenge.
The golden rule: it must be real
They must actually do the work, and be paid a commercial rate for it, no more than you would pay anyone else for the same job. Paying your teenager a director-level salary for filing once a month will not fly.
The savings
If a family member has little other income, a wage (or dividends, if they are a genuine shareholder) can use up their personal allowance and lower tax bands, which the household might otherwise waste. A reasonable wage is also a deductible cost for the business.
Do it properly
Put them on the payroll, operate PAYE, pay at least the national minimum or living wage where it applies, keep a record of the hours and the work done, and pay into their own bank account. Treat it exactly as you would any other employee.
Watch out for National Insurance once pay passes the thresholds, the minimum wage rules, and the test that costs must be wholly and exclusively for the business. Gifting shares to a spouse can also be efficient, but needs care.
General information, not personal advice. We will look at what works for your family and business.
We help owner-managed businesses structure this properly, so the savings are real and the paperwork stands up.
