Sometimes it can be tax efficient to pay a wage or salary to family members. If you do wish to do so, there are a few things you should consider.
Watch our video, or read about it below.
The first is that, if it’s your children, they need to be of an age that they can legally work.
The age that a child can legally work in the UK is 13 years old. At 13, they can take a part-time job. The hours are limited, but they are allowed to work at that age. The only exception is in certain trades such as acting and modelling, where younger children can work.
Once they are at an age when you can legally pay them a wage, to be tax deductible the wage you pay should be realistic and not excessive.
And you do actually need to pay it over to them, not just record it as a wage to get the tax relief.
Now, the wage should also be wholly and exclusively for the purposes of the trade.
What’s happened sometimes in the past is that HMRC have looked at wages paid to family members and actually taken a view on whether it was indeed wholly and exclusively for the purpose of the trade.
If they felt the wage was excessive, they disqualified part of the wage.
Therefore, if you are going to pay a family member, including a child, the wage must be realistic. It can’t be excessive, and you do pay it across.
There should also be a methodology in how you’ve come up with the wage. This could be a record of the hours worked and an hourly rate or simply something that compares it to a market salary.
If you follow these criteria, you can pay your children a wage or salary from your business and claim tax relief on that salary.
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