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
