If your children work in your business and they’re working for free (or a pittance), you’re both missing out.
Paying the kids to work in your business can create some pretty low-hanging-fruit-style tax savings, hence shifting some of the business profits from you (at between 29% and 47%) to them (at, usually, a big fat zero %).
And, not to mention, if they’re interested in a career doing what you do, what better place is there than starting on the bottom rung so they know the business from the ground up.
This blog looks at the tax angles (natch!), but do bear in mind you’ll have the normal legal and contractual responsibilities as with any other employee, plus some extra hoops for under 18s, like the type of work they and do, the number of hours they can work depending on their age.
Cut to the chase: Can I employ them?
The law allows children aged 13 and over to do ‘light work’, such as paper deliveries, shelf stacking, clearing tables, office work, fruit picking etc. For obvious reasons, they can’t work in settings like factories, construction or transport.
If your children are 18+ but still in full time education, then the normal rules apply, just like any other adult of that age.
National Minimum Wage rules still apply of course, but in reality it would be good tax planning to pay them as high as can reasonably be justified. Pensions Auto-Enrolment probably isn’t going to be an issue until they are 22.
Note that we’re only humble accountants, and not HR specialists or employment lawyers. I’d recommend speaking to your HR provider for advice on that front, just as you would when taking on ANY new employee. Let me know if you need an introduction to someone.
How much can children be paid?
Short answer: it depends.
Let’s say they help out on a Saturday morning in the office, cleaning up or doing some filing etc, what would that be worth to your business?
Don’t focus on “what’s the National Minimum Wage for his/her age”. Let’s ask instead, what would you happily pay someone else to do the same work?
Even a contract cleaner is going to be £15+ per hour. And that’s before we look at some of the higher value tasks teenagers can probably do better than some adults – for example, looking after your social media or keeping the website up to date. Even if the kids are at Uni, with a laptop and some free time, they can do all this remotely.
Now let’s multiply just 2 hours a week over (say) 50 weeks of the year which comes out to £125 per month, or £1,500 per year. Plus, it’s likely that during school holidays they will have some extra time available to work a few extra hours if they want.
So, that’s at least £1,500 in your kids’ bank accounts, with them paying no tax. And £1,500 off the profits of your business is going to save you between £430 and £700 a year. And if you’ve got a clutch of willing and able teenagers, that amount is per child. Nice!
Oh, and it goes without saying that they do actually have to be doing work for you – otherwise, that’s just fraud.
This is a genuine surprise to some clients, but you do actually have to pay your children, just like you would a regular employee, and put their wages into a bank account in their name.
What they do with the cash from there is entirely up to them. However, my advice is to think about one of the following:
1) You reduce their pocket money/allowance accordingly; in a roundabout way it means the business is footing the bill for their pocket money, easing the pressure on your personal finances a smidge, and in turn, the amount you need to take personally from the business.
2) For young adults living at home…charge them rent! They can pay the rent with some of their wages, and what they pay you will be tax-free in your hands under the Rent-a-Room relief scheme. In effect, what the business paid them is back in your hands, without HMRC taking their cut.
3) Ask them to set up a separate savings account and pay their wages into there, to build up a bit of a kitty towards their future uni fees for example.
4) Or, just let them spend it on whatever they want, and teach them early on the value of money – and the rewards of saving!
The underlying point here is that, in the first instance, they need to be physically paid.
You also need to put their wages through payroll in the normal manner (speak to your accountant, they’ll deal with all that). Because, without proper payroll records, where’s the evidence this was a genuine business transaction?
If your children work in your business, doing legitimate work that you’d otherwise be doing yourself or paying someone else to do, get them on the payroll and pay them accordingly.
It’ll lighten your tax bill, whilst also gives them exposure to what it’s like to earn – and spend – your own money, rather than use the Bank of Mum & Dad.
If you’d like to find out more about involving your kids in the business, get in touch.