Do your family members work for your business? You should be aware that there are potential tax benefits. To find out more continue reading below.

What should you know?

If you employ a family member to help out in your business, then you may be eligible to claim a tax deduction.

Their duties could be:

  • Going to the bank
  • Bookkeeping
  • Answering the phone

The definition of ‘Family’ is for anyone that depends on the owners of the business for their financial well-being.

What are the conditions?

Tax legislation states that no deductions are allowed for business expenses unless they are incurred wholly and exclusively for the purposes of the trade.

What are the benefits?

If you decide to spread income around family members then you can maximise the use of annual personal tax allowances, and you could take advantage of nil and lower rate tax thresholds.

The allowances are £12,500 per individual in 2019/20.

What records do I need to keep?

It is vital that you as a business owner make sure that you maintain proper business records for payments, which are made to your family member.

For example

A business owner claimed that she paid wages to her daughter through the ‘provision of goods’ of purchasing clothing through the business.

But, she did not qualify for a tax deduction as she did not have a direct link between her business account and the recipients account.

Therefore, it is essential that accurate records are kept for the number of hours the daughter had worked and that the wages are paid directly to her bank account for her to buy her own clothes.

How much should I pay?

You should consider the concept of ‘equal pay for equal value’.  It is essential that you should pay your family member a wage that is fair and is at the national minimum wage.

HMRC will examine whether you are paying your family member a commercial rate.

Further Actions

If you are a business owner and employ family members, then you should make sure you are paying them fairly and keeping accurate business records to be able to get a tax deduction.

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Any questions?
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