Our Tax Tip number two is to keep it in the family. Did you know you can pay a family member as well as yourself?
Watch our video to learn more about how to pay family members.
The first person you might look to is your partner.
If your husband or wife doesn’t work, you might want to pay them the same tax-efficient salary as I talked through in Tip 1.
That could save another £1,700 of tax in the business, while they receive the cash tax free.
Now, they should be doing some doing something for that – something you can justify paying them a salary for. For example, it could be helping out on the admin.
Can I make my partner a shareholder?
The next step would be to make them a shareholder in your business because they can get annual £2,000 dividend allowance tax-free, and also benefit from the lower tax rates as well.
The rates change slightly every year but, to give you an idea of the effect: if one person solely owns a business that makes £100,000 of profit, they will pay around about £31,000 of total tax bill across all the taxes.
But, if two people own that company jointly, the total tax is under £20,000. That’s more than £11,000 cut off your tax bill, so it’s well worth doing.
What about the kids?
Did you know you can actually pay your children a salary as well?
Now, I was asked a little while ago how old somebody has to be to have a salary and I didn’t know the answer. However, I was pretty sure my client who was asking couldn’t put the six month old baby onto the payroll. Now it turns out they could in certain professions – things like acting or modelling.
However, generally speaking, children have to be aged 13 or above to have a part-time job.
Now this could work really well, perhaps if they’re at university and you’d be giving them money anyway. You might want to actually get them to do some work for you at the weekends or in the summers and pay them a salary to get tax relief in the company.
However, you do need to be careful – to be allowable, the salary should be realistic, not excessive, and must actually be paid.
You can also give your children shares in your company. Now, if they are under the age of 18 it’s actually the parents gets taxed on dividends so there isn’t a benefit. But, if they’re over the age of 18, they can benefit from the tax-free allowance and also the lower tax rates.
If you would like any more information, please feel free to get in touch.