The Jonathan Ford & Co Advent Calendar – Day 10
Over the course of the festive season we’ll be bringing you an advent calendar’s worth of tax and financial tips. Some of them might even be a little Christmassy! Family members knocking around the house with nothing to do? On the 10th day of advent, think about getting them involved in your business…
Employing non-working or low income family members
Consider employing non-working family members in your business so that their tax free personal allowances don’t go to waste. If you pay them a reasonable wage for what they do for you then your business will get tax relief on the wage you pay them. It’s likely they won’t pay tax either so it’s win-win.
This strategy can be used by both companies and sole traders although each has their own considerations. Making a family member, for example a spouse, a director of the company can mean you can pay them more than if they were not a director. This is because directors have specific responsibilities, as set out in the Companies Act.
Sole traders should take particular care, especially as paying family members can often be quite informal and in cash. If you want the tax relief, however, then the arrangements need to be more formal. The easiest way of doing this is to operate a payroll but if a log of hours is maintained and a bank transfer of the wages is made then a payroll may not be required.
Beware: sole traders may need to operate a payroll in any case if the family member has other income.
