Running a small business often involves juggling multiple responsibilities. One moment you’re serving clients, and the next you’re managing cash flow, handling administration, and trying to keep up with marketing.
However, there may be someone in your household who excels at these tasks. Younger family members can be an asset for social media posts, general administration, and the easier aspects of your business. We’ve witnessed this frequently with our clients, where children step in to help.
What we often overlook is that these children are not always compensated at market rates for their work. We tend to support our children, whether it’s through pocket money when they are young or helping them during their university years. So, consider making those payments more tax-efficient if you run your own business.
Understanding the Tax Benefits
One of the main attractions of employing your children is the potential tax efficiency. In the UK, every individual has a personal allowance, meaning they can earn up to a certain amount before paying income tax. If your child has no other income, they may be able to earn up to the personal allowance threshold without incurring an income tax liability.
From a business perspective, wages paid to an employee are generally deductible expenses, provided they are wholly and exclusively incurred for business purposes. This means that paying a child for genuine work can reduce the business’s taxable profits, while the child may receive their pocket money genuinely from the business tax-free.
When structured correctly, this can be an effective way of moving income within the family while ensuring the business receives real value in return.
What About National Insurance (NIC)?
National Insurance can make the arrangement even more attractive in certain circumstances. Children under the age of 16 are not required to pay National Insurance contributions, and employers are generally not liable for employer National Insurance contributions on wages paid to children below that age.
Once a child reaches 16, National Insurance rules begin to apply. However, contributions are only payable above certain earnings thresholds, and some businesses may benefit from reliefs such as the Employment Allowance. As a result, employing older children can still be a tax-efficient arrangement when managed correctly.
We suggest that you check the NIC implications with your payroll provider, as it depends on your child’s age and who else you are employing in the business. We would also recommend that, if you are going to pay your child for any work, you process it through your payroll.
The Importance of Doing It Properly
While employing your children is entirely acceptable, it must be done on a genuine commercial basis. HMRC has no issue with family members working within a business, but it expects the arrangement to reflect genuine employment rather than merely serving as a tax-saving mechanism.
The work must be genuine, the pay must be reasonable (and comply with minimum wage rules), and the arrangement should resemble that of any other employee. Paying a child a substantial salary without them contributing meaningful work is likely to attract scrutiny. So you need to avoid this.
If HMRC reviews the arrangement, it will typically expect evidence that your child is performing actual duties, working genuine hours, and producing work that benefits the business. The salary paid should also be appropriate for the tasks performed.
If these requirements are not met, HMRC could disallow the wage expense, resulting in additional tax liabilities and potentially penalties.
The simplest rule is to treat your child as you would any other employee. If the arrangement would make sense for a non-family member, it is far more likely to withstand scrutiny.
To support your position, it is sensible to keep a basic job description, records of hours worked, evidence of completed tasks, and details of payments made. Where appropriate, payments should be processed through payroll and supported by normal employment documentation.
Clear records are often the difference between a straightforward review and a difficult one.
What Work Can Children Realistically Do?
Many business owners underestimate how much value younger family members can contribute. There are numerous legitimate roles that teenagers and young adults can perform in business, particularly in today’s digital environment.
Social media content creation is one of the most obvious examples. Your children can assist with filming videos, editing content, creating graphics, scheduling posts, and helping maintain a consistent online presence. They may also be capable of taking product photographs, updating website content, organising files, managing stock records, or carrying out simple administrative tasks.
These are all genuine business activities that can add value and provide clear evidence of work performed.
Additional Rules for Children Under 16
One area that often surprises business owners is the additional employment regulations that apply to younger children.
It is illegal to employ children under the age of 13, and employing those over 14 is subject to additional council regulations and checks. There are restrictions on the number of hours they can work, the times of day they may work, and the types of work they may undertake. Employment must not interfere with their education, and in some cases, a work permit from the local authority may be required. A
All of this makes it far too complicated.
Final Thoughts
For many small business owners, employing their children can be a highly effective strategy when implemented properly. It can provide meaningful tax efficiencies, help address genuine business needs, and give younger family members valuable skills and experience that may benefit them for years to come.
If you are considering employing your children within your business, it is worth seeking professional advice before putting the arrangement in place. A properly structured setup can deliver significant benefits for both the business and your family. A poorly implemented one can create unnecessary complications that outweigh any potential savings.
Contact your normal manager if you need any help from us. We would love to hear from you.
If you are not yet working with us, here’s who we help. Or you can email us at enquiries@myersclark.co.uk