Kids on the payroll?
If you have your own business and you have children as well, you may have wondered about the advisability of employing them in the business. Wonder no longer, here are the pros and cons.
- You can teach the little (or not so little) darlings the value of money and hard work, and they have some real work experience to put on their CV’s.
- You can pass money and benefits to them tax efficiently. Their salaries (for which, obviously they will need to do proper work) are tax deductible for the company, and you can potentially contribute into a pension scheme for them, medical insurance or provide cars or phones etc for them where appropriate (no, the little electric mini does not count sadly – well, perhaps if you have a toy business).
- You can transfer the business to them if they are inspired to follow in your footsteps. In most cases, if you operate your business through a trading limited company, under current tax law you can pass shares on to other family members and so gradually transfer the business with no immediate tax liability. With partnerships, family members may also be taken into partnership, so you have more flexibility in profit allocation. Taking your grown up children into partnership and gradually reducing your own involvement as their contribution increases can be a very tax-efficient way of passing on the family business.
- If you have ever taught a family member to drive, you will be aware that it can be a very speedy route to falling out. The same goes for working together!
- Before you rush to get your 5 year old on the payroll (and young people are very talented nowadays), the regulations are a minimum age of 13 for part time work (except show biz/modelling https://www.gov.uk/child-employment/minimum-ages-children-can-work )
- Any salaries do have to be commercially justifiable. HMRC may challenge excessive remuneration or share packages, before you start paying your 14 year old £50k for sweeping up.
- If HMRC suspect you are just transferring cash and benefits without any real work being done in exchange, you can fall foul of the “settlements” legislation, so do have a chat with us first to make sure your plans are commercially viable.
Wishing you and the Next Generation a happy week.