Tax Benefits to a Sole Trader
The salary paid to your child will be a tax-deductible cost to your business. As a sole trader, your taxable profits will decrease, and you will save tax at the rate that you pay it.
You pay your children £50 per week (£2,600 a year) to work part-time in your business:
- Your profits will fall by £2,600. In turn your tax and national insurance will fall, for a higher rate tax payer they will fall by 42% (£1,092). The real cost to you will be £1,508.
- If your child has no other income they will not pay any tax or national insurance on this. If they are under 16, neither your child or your business will have to pay national insurance contributions.
Tax Benefits to a Limited Company
A limited company will save tax at 20% (providing the profits are less than £300,000). Assuming the child is below the age of 16 there will be no national insurance to pay by you as the company.
Restrictions to employing your children
Be aware that there are rules to adhere to when employing children, a couple of which are detailed here-
- It is generally illegal to employ children under the age of 13, unless for specific jobs such as acting / modelling, where parental consent etc is required.
- The rules on employing 13-year old’s tend to be Governed by local by-laws, please contact your local authority if you are in any doubt.
- Any business employing children under school leaving age must have a permit from the local authority. Children under 16 (other than those above) can do ‘light work’, as long as it doesn’t interfere with their education or have health and safety implications for them.
How much can you pay children?
The salary that you pay your child must be in line with the work that they do within your business, i.e. they cannot be paid £30, 000 to wait on tables. The minimum wage rates need to be adhered to though, so if your child is aged 15 or over, their salary must reflect these. In addition, the amount paid needs to be seen as comparable to the wage that you would pay any employee to do the same work.