Family-run businesses often rely on the dedication and support of relatives, whether it’s your partner helping with admin or your children assisting during the festive season. But what are the rules when it comes to paying family members through your limited company?

Here’s what you need to know to reward their contributions while staying on the right side of HMRC.

Paying Your Spouse or Partner

If your spouse or partner is a Director within your company, they can receive a Director’s salary, even if their role isn’t sales-facing.

• No Limits on Pay: There’s no upper or lower limit to what you can pay them, but it’s vital that the amount is tax-efficient.
• Document Their Role: Ensure their role is defined, as HMRC may question payments that don’t align with genuine business activity.

Paying Younger Family Members

If younger family members, such as your children, help with tasks like filing, copying invoices, or tidying your home office, they can also be added to your payroll. However, there are specific rules for children under 16:

• Council Restrictions: Local councils impose rules on working hours for children, including prohibiting work during school hours. These restrictions are relaxed during school holidays but must still be adhered to.
• Time Limits: Children cannot work too early in the morning or too late at night, and there are maximum allowable hours they can work per day and week.

Paying Older Family Members

For family members over 16 who live with you, National Minimum Wage rules don’t apply, giving you flexibility to pay them as you see fit.

Avoiding HMRC Pitfalls

To keep things above board, it’s important not to overpay family members:

• Stick to Market Rates: Payments must reflect the value of the work performed. Overpaying could be seen as a tax-efficient way of withdrawing money from your business, which HMRC may class as tax avoidance.
• Keep Detailed Records: Document the roles and responsibilities of family members and ensure payments match the work they do.

Get the Business You Want

Paying family members can be a great way to recognise their contributions and ensure your business runs smoothly. But to do it effectively, you need to follow HMRC guidelines and structure payments correctly.

If you need support understanding the rules or setting up payroll for family members, we’re here to help. At Carthy Accountants, we’ll ensure your family-run business operates efficiently and compliantly.

At Carthy Accountants, we’re Helping You Get the Business You Want.