Employing your kids via your limited company
Posted on 1st August 2019 at 15:29
With the summer holidays in full swing, as a parent, the pressure is on to keep the kids busy, entertained and away from mischief.
Easier said than done!
When it comes to younger children there are often various clubs and activities you can send them to, and older kids tend to be quite happy to stay at home watching Netflix and endlessly scrolling through their social media feeds (especially when the sun inevitably disappears).
For limited company directors, there is another option for keeping older children occupied – but beware, it may take some convincing!
Employing your 13+ child via your limited company: legislation
There’s no doubt that children are more tech-savvy than ever these days, and you may have a teen who’s particularly talented in blogging, graphic design or video creation – just to name a few areas.
Employing your child and paying them a salary can be an option if you want to give them some work experience and benefit from corporation tax relief on the salary you pay them. You should bear in mind that there is a cap on how many hours they can work per week, though. During the holidays, 13-14-year olds can work up to 25 hours per week, and 15-16-year olds can work up to 35 hours. During term time, any child aged 13-16 is limited to working a maximum of 12 hours per week.
Your local council may require you to apply for a child employment permit before you employ your child, so you should check on the gov.uk website to be sure that you’re not in breach of child employment legislation.
How much can you pay a child?
You should ensure that you’re paying your child a fair salary in line with their skills and expertise – and bear in mind that a significantly high salary may attract attention from HMRC, so be realistic. In terms of the law, children aged 13-15 are not entitled to National Minimum Wage, but a child aged 16 is legally entitled to at least £4.35 per hour.
In terms of tax, children under 16 do not have to pay National Insurance Contributions. However, even if your child’s income does not reach the current personal allowance of £12,500 per year, you still need to treat them as you would any other employee i.e. you would need to complete a P46 and set the child up in your payroll software.
Only employ and pay your child if they are genuinely performing a role
If HMRC suspects that you are paying your child a salary in order to avoid paying tax, they will apply the income shifting rules, which means the child’s salary will be taxed as though it is yours – meaning you will then have to pay back the taxes and any other applicable interest.
There is also the risk that HMRC will add penalties if it thinks you’re only employing your child to avoid paying tax. For example, if you are paying your 14-year-old child £12,000 a year to take the occasional phone message, filing your correspondence or any other similarly basic job, the taxman might class this as deliberate avoidance and hit you with a penalty of up to 100% of any tax owed.
Reasons employing your child can be a good idea
Not only does it give your child a chance to earn a bit of extra pocket money and build up a good work ethic for them to take into their future career, you can benefit from some tax savings, albeit some small ones.
As long as you are aware of your council’s rules surrounding child employment law, you are paying them realistically and fairly and your child does not work beyond the hourly limit per week, it can be a valuable experience for your child and beneficial to you.
It’s important that you don’t end up being investigated by HMRC for employing your child and paying them a salary beyond reason. It can be difficult knowing how much to pay them, and what tasks they can and cannot do – but we can help you ensure you don’t get caught out.
Book a call with Nicola, our founder, here – or send us an email. We’d love to help you figure out the best steps for you and your family.
We also have a guide on how to become an employer, which is more geared towards people looking to scale their business and employ adults, but some parts are relevant to this article. It’s free to download, and can be found here.
Nicola J Sorrell
- Effective Accounting
Founder | Xero Champion | IR35 Expert
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