Legal and Financial Considerations When Employing Your Children in Your Family Business

When you run a business, you often do so for the benefit of your family. This is not only due to the financial benefits and the working hours, but also to be able to provide them with guaranteed forms of employment should they need it. Employing your children within your business can be a great idea but there are a number of considerations that you will need to consider before you do.

There are a number of factors that you will need to think about with regard to finance and certain legal implications that can make employing family members more complicated than a typical employment arrangement. In this article, we take a look at a few of the things hat you need to be aware of before giving your children a job.

Here, Rogers Spencer, specialists family business accountants in Nottingham provide their insights.

Employment laws

Whilst your children might live by your rules at home, they will be subject to the same employment laws as everybody else. That means that you need to consider their age, the hours they can work, the breaks they are entitled to, and they must be paid at least the relevant national minimum wage, although this does vary if they still live in the family home.

It is worth remembering that children under the age of 18 are not permitted to operate dangerous machinery and those under 13 should not be working at all, but this may be subject to local by-laws. Children who are still at school can only be employed to work up to two hours each day as long as it does not have any impact on their health and safety or their education. It is possible to increase this to eight hours at weekends and during school holidays, but these hours must be between 7am and 7pm.

You will still be required to register as an employer with HMRC if you make any payments to your children, even if it is just a job to see them through the holiday’s unless they are earning below the lower earnings limit. A failure to do so can incur fines and penalties so it is important to stay on top of this.

Children as students

If you employ a student to work for you at any time that is not the school holidays, then you will need to operate PAYE as normal. However, if they are only working during the summer, Christmas, or Easter holidays then you make be able to apply some special rules.

These can make the administration of the employment easier and may mean that you are not required to register as an employer with HMRC. This means that you can pay them without deducting tax, but you may still have to account for National Insurance.

Wages

It might be tempting to pay your unqualified 15-year-old a £30,000 salary, but this is not acceptable. The wage that you pay must be fair and justified, as well as appropriate for their age and qualifications. The rate you pay must follow the rules for the National Minimum Wage and should not be any more than you would pay to a non-family member doing the same job with the same level of knowledge and experience.

Your child, including adult children, can set up their own business and work for you on a freelance basis. They will be taxed on their business profits, but you will not be required to pay any National Insurance. If your child provides a service to your business, they must make sure that it is properly invoiced and there should be clear lines of differentiation between being employed and self-employed.

Partnerships

You could make your child a junior partner in your business, and by making the business a Limited Liability Partnership (LLP) you can help to safeguard the private assets of the family from any creditors. This partnership will need a written legal agreement, and the terms of it must be acted on properly or it will be declared null and void by HMRC.

Tax implications

There can be a number of tax implications when it comes to employing your child. It should be remembered that children under the age of 16 do not have to pay any National Insurance , but even if their earnings do not reach their personal allowance limit, you will still need to complete a P46 and set them up on your payroll software.

Employing your children to do certain roles can mean that their wages can be offset against your profits for tax purposes. The wages that you pay to them would otherwise have remained part of your own taxable profits and you would have been required to pay tax on them, so it can help to save the family money. If the amount is within the personal tax allowance, they won’t be required to pay tax on it either.

Professional advice

It can be difficult to know whether employing a child within your business is a good idea and what the implications are likely to be. It is therefore a good idea to refer to family business accountants who can advise you on what is legal and correct, as well as what is most likely to be financially beneficial for you.

Accountants for family businesses know how the law and HMRC view the employment of children and spouses and can therefore tell you if it is a good idea, who might benefit and how. They will ensure that everything is done fairly and correctly so that HMRC can be happy that the employment of your son or daughter is all above board and that the correct tax and wages are being paid to the right people.

This is particularly important to make sure that children are not being taken advantage of and that other employees are not being unfairly treated in comparison with your child. They can also ensure that everything is paid correctly to make sure that you will not find yourself with any fines or penalties from HMRC.