If you have your own limited company, you might be wondering if you can employ your family members – and if so, are there any rules regarding this? See our guide below for all the details on employing family members.
Can small businesses employ family members?
Yes, a small business can employ family members – as long as the job is a real role. There isn’t a limit to the number of family members you can employ but there are some rules regarding employing family members.
Rules on employing family members
- The role must be a real job. A job can be created for them but there must be a legitimate business need
- The pay must be reasonable for the job. Unrealistically high pay could be seen as business owner earnings to HMRC.
- Bookkeeping for small businesses is important – payroll will need to go through the regular system so that national insurance and tax can be calculated. This way a pay trail can be established which is ideal in the event of an audit.
- Children under 13 cannot be employed. Children aged 13-15 may be employed on a part-time basis. The work must not affect their safety or education.
Can I employ my wife in my limited company?
Yes, you are able to employ your wife or spouse at your limited company. Just like other employees, they will need to be paid for the hours they work. Employing your spouse and other family members could affect your household income tax so it’s important to work this out.
How does employing family members impact tax?
If you own a limited company, employing your spouse can be tax-efficient for household income tax. Splitting a salary between two individuals can cost you less – depending on the overall salary.
In terms of business taxes, any salary is a deductible expense but if your employee is eligible to pay national insurance, the employer will also have to pay national insurance so, again, this is dependent on the overall salary.
We can help you work out your tax implications by employing your spouse at Accountancy Solutions. Simply contact us for more information.
Pros and cons of employing family members
A limited company employing family members has both its pros and cons. So, before you decide to hire a family member, make sure to weigh your options.
Pros
- Less time and money scouting and vetting employees
- Family members will already have the background and prior knowledge of the business
- It could lower your household tax bill (as mentioned above)
- Family members are likely to champion your business
Cons
- Could affect employee morale – sometimes hiring a family member can send the wrong message to other employees. Some may see an element of favouritism.
- Family members could expect some favouritism and therefore not perform the way you’d like
- Managing family members can be awkward
- Could cost you more in household income tax, so you will need to check this.
We hope this guide on small businesses employing family members was helpful! For more business advice, see our guide on the new Making Tax Digital government scheme.