Employing your child during the university summer break
As a controlling director of your company, you may be considering offering employment to one of your children during the university summer holidays. Let’s take a look at the regulations around pay and whether it is tax deductible for the company.
There is nothing to stop you employing your child in the university summer holidays to carry out tasks that they are capable of doing and paying them a wage for doing so.
What will they be doing?
It is essential that the relative you take on is actually doing the job they are employed in. HMRC also require that the wages they are paid do not exceed the commercial rate. If the amount paid is higher than the market rate for that job role, then HMRC can seek to disallow the excess in the corporation tax computation because it has not been incurred “wholly and exclusively” for the purposes of the company’s trade.
To not fall foul of this, implement the following:
Have a job description
To record the role your child will be doing and ensure that it is clear what the job entails, then create a job description that accurately reflects their duties.
Keep records showing what hours are being worked, including completing a time sheet if relevant.
Wages equivalent to employing a third party
The wages or salary that the company pays your child should be the same as you would pay for anyone else to be doing that job.
Treated as all other employees
In the same way as any other person the company employs, your child should go through the new starter process. Completing any checklists, training and being added to the payroll.
Pay goes straight to your child
Any salary the company pays should be paid directly to your child rather than merely being an accounting entry against your director’s loan account.
What about the minimum wage?
There is an exemption for sole traders that family members employed by them and living in the family home do not have to be paid the national minimum wage or national living wage. However, this does not apply to companies.
This means that any salary paid to your child must comply with the national minimum and living wage requirements. You can get more information on this via the gov.uk website.
If your child is a director of the company, then the national living wage may not apply as long as they do not have an employment contract and are only receiving a salary for their role as an office holder. This could also potentially justify them earning a higher salary as compensation for their additional responsibilities.
However, don’t set them up as a director now and then resign them straight after the summer holidays or you could fall foul of anti-avoidance rules. You should only make your child a director of the company if they will actually be carrying out that role for the longer term. There are many responsibilities involved, and legal requirements for directors and penalties can be incurred if you get this wrong.
If you found this information useful, you may also want to check out the following:
- Director responsibilities for limited companies
- Reducing your risk of corporate tax evasion
- Do you need a business will?
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