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Should you employ family member for tax saving purpose?

If someone in your family has no other income, you could take them on as an employee in your company and save tax as a result. This could be your spouse or your adult children – and

it could even be used as a method to help fund their costs of further education whilst gaining tax relief on any money spent by your company.

 

However, you must take care to ensure that this is a commercial arrangement and that the

member of your family is paid at the appropriate market rate for the work they carry out.

HMRC have been known to attack this form of arrangement where they perceive the rules are

being abused by making an excessive payment to a family member (refer to the tax case

Dollar v Lyon if you’re interested).

 

You also need to adhere to the National Minimum Wage rules, especially where you employ

a family member who is not a director.

 

Example

 

Walter is a director and 100% shareholder of Massive Dynamic Ltd. His twin sons Peter and

Robert, who are aged 19, are both studying full time for a degree in Physics.

Walter decides to employ Peter and Robert part-time during their university breaks – these

amount to 14 weeks per annum. They assist Walter with research and carry out various

administrative duties for the company (including answering the phone and data entry). Peter

and Robert works 30 hours a week for which they are paid £7.50 an hour.

By paying them both a salary, Walter is able to help fund their University education whilst

reducing his own and the company’s tax exposure

Dennis Chen

Dennis Chen

Dennis specialises in helping SaaS companies and technology firms profit wildly by efficient tax-saving strategies and significant research and development tax relief.

About Me

Dennis specialises in helping  SaaS companies and technology firms profit wildly by efficient tax-saving strategies and significant research and development tax relief.

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