Employing Your Children in Your Business
Paying salaries to your children is a good way to reduce your taxable profits but which children can you legally employ?
With some limited exceptions for specific jobs (e.g. acting or modelling), it is generally illegal to employ children under 13. This will rule out most businesses from employing very young children, although there will be exceptions.
The position for 13-year olds depends on local by-laws. Some areas allow them to do limited work, some allow them to do the same work as a 14-year-old and some do not allow them to work at all.
Children under school leaving age may do ‘light work’ (e.g. office work) provided that it does not interfere with their education or affect their health and safety. Certain types of work (e.g. factory work) are prohibited and any business employing children under school leaving age must obtain a permit from the local authority.
Subject to these points, children still attending school can work up to two hours most days. On Saturdays and weekdays during school holidays this is increased to eight hours (five hours if under 15). Working hours must fall between 7 am and 7 pm and are subject to an overall limit of 12 hours per week during term time or 35 hours during school holidays (25 hours if under 15). The child must also have at least two weeks of uninterrupted holiday each calendar year.
16 and 17 year olds over compulsory school age can generally work up to 40 hours per week and can do most types of work, although some additional health and safety regulations apply. Children aged 18 or more are mostly subject to the same employment rules as anyone else, including the working time directive.
In essence, therefore, you can generally employ any of your children aged 13 or more and pay them a salary which is deductible from your own business income.
Giving shares in your company to minor children is perfectly possible, but any dividends that you pay to under eighteens will be treated as if the income belonged to the relevant parent. HMRC would invoke the settlements legislation to do this. You could employ an under eighteen-year-old son or daughter, but you will need to be mindful of commercial considerations. These would include:
- You would have to observe the minimum wage regulations
- The hourly rate paid should be a commercial rate for work undertaken. It would be hard to justify paying your children £50 an hour to deliver leaflets
Once your child reaches the age of eighteen more opportunities arise: the possibility of issuing shares and paying dividends, if your business is a company, may be possible. At present, this is a useful option, as the first £5,000 of dividend income is completely tax free. If appropriate, this may be an attractive way to provide a tax-free allowance to reduce the need to extend student debt for example.
If you operate as a self-employed trader, you will not be able to issue shares, but you could employ your son or daughter if you are mindful of the commercial considerations listed above.
However, whether self-employed or incorporated. there are issues that should be resolved before transferring or issuing shares, or employing offspring, not least, that you may be diluting your ownership of your business. We can help. Planning in this regard is best done prior to making any decisions to involve children in this way.