Lambert Chapman LLP's Paul Short looks at Employing your Children in the Family Business

During conversations with clients, there have been many occasions when comment has been made that their children have been assisting them in their business. It may be that they are helping out during the school holidays or for a couple of hours at the weekend.

Work undertaken may include:

 

• Administration work.
• Typing and filing.
• Website design.
• Assistance with IT.

In these circumstances we would normally recommend that they consider rewarding the child through the payment of salary.

The payment of wages to children in return for the work they undertake will often allow tax efficient reward and can provide significant tax savings.

Normally, the child will not be utilising their personal allowance elsewhere, thus resulting in the salary received being tax free.

Example

A salary of £2,500 per annum paid to a child, which is covered by their personal allowance, can create significant tax saving of up to £1,500.

Based on this, the effective cost of the child receiving payment of the salary of £2,500 could be as low as £1,000.  

The actual amount saved will depend on marginal tax rates.

Legislation

There is various legislation covering the employment of children and young people.

A brief summary of the rules is as follows. There may also be local bylaws.

• No child under 13 may be employed.
• No one under 16 may be employed in manufacturing or a dangerous activity.

Young people between the ages of 13 and 15 may not do any work:

• Before 7.00 or after 19.00.
• For more than two hours on a school day or Sunday.
• Before the close of school hours.
• For more than 12 hours a week during term time.
• 13 to 14 year olds are prevented from working for more than 5 hours on Saturdays and during school holidays on weekdays. A maximum of 25 hours a week can be worked during school holidays.
• 15 to 16 year olds are prevented from working for more than 8 hours on Saturdays and during school holidays on weekdays. A maximum of 35 hours a week can be worked during school holidays.
• For more than 4 hours without taking a minimum break of one hour.
• In any prohibited occupations or in work which may be harmful to their health, well-being or education.

Please contact me or your local contact Partner for more details on the subject of employing children and young people.

Date:29 July 2010

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