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Paying Your Children Through Your Business Payroll:
A Smart Tax-Saving Strategy
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If you're a business owner in the UK, paying your children through your company payroll can be a legitimate and effective way to reduce your tax bill. By employing your children in a genuine role within your business, you can take advantage of tax-free allowances and lower overall tax liabilities while teaching them valuable work skills.
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Advantages of Paying Your Children Through Your Business
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1. Reduce Your Tax Bill Legally
Salaries paid to your children are a legitimate business expense, reducing your taxable profits and, therefore, the Corporation Tax or Income Tax you owe. As long as their wages are reasonable for the work they perform, this can be a highly effective tax-saving strategy.
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2. Utilise the Personal Allowance
Every individual in the UK has a Personal Allowance (£12,570 for the 2024/25 tax year). By paying your child a salary within this limit, they will not owe Income Tax, and your business benefits from the tax deduction.
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3. Avoid National Insurance Contributions (NICs)
If your child earns below the National Insurance threshold (£242 per week in 2024/25), neither they nor your business will need to pay NICs, making this a tax-efficient method of income distribution.
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4. Keep More Money Within the Family
Instead of withdrawing additional dividends or salary (which could be taxed at higher rates), paying your children shifts some of the family's income to a lower tax bracket, allowing the household to retain more money overall.
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5. Teach Financial Responsibility
Employing your child provides them with early work experience, instils financial responsibility, and allows them to contribute to their own savings or investments, including Junior ISAs or pensions.
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Key Rules and Considerations
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1. The Work Must Be Genuine
Your child must perform real work that is appropriate for their age and skill level. Common roles include:
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Administrative tasks (filing, answering emails)
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Social media management
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Website updates
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Stock organisation
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General office support
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2. Age Restrictions Apply
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Children can work part-time from the age of 13 in most cases.
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Full-time work is allowed from school-leaving age.
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Under 16's do not qualify for the National Minimum Wage, but their pay must still be reasonable.
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3. Payments Must Be Justified
The wages must reflect the work carried out. Excessive payments could be challenged by HMRC as an attempt to avoid tax.
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4. Register as an Employer
If your child earns above the Lower Earnings Limit (£123 per week for 2024/25), you must register as an employer with HMRC and operate PAYE.
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5. Keep Proper Records
Maintain clear records of hours worked, tasks performed, and payments made to ensure compliance in case of an HMRC audit.
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Final Thoughts
Paying your children through your business payroll is a tax-efficient way to reduce your company’s tax bill while providing valuable work experience for them. However, it’s essential to ensure the work is legitimate, payments are reasonable, and all necessary tax rules are followed.
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If you need advice on implementing this strategy for your business, get in touch with us today for expert guidance.
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