PAYING YOUR CHILDREN

Many parents give their children extra pocket money for helping out in the family business, but not many bother to put it through the books. This is a mistake because it can be a very good way of reducing your tax bill. Children are entitled to an annual personal allowance just like everyone else and if you pay them less than this it is not taxable. Also, there are no NI contributions due on wages paid to workers younger than 16, either by the employee or the employer. However, you can claim their wages as a taxable deduction from profits provided they are not deemed to be excessive.

It is perfectly legal to employ children over the age of 12 provided it does not take up school time and they do not work before 7am or after 7pm. The work must also be safe and require no heavy lifting. However, you may need to ask your local authority about permits.

If you pay them less than £97 a week on an occasional basis, then there is no need to declare their wages on your year end PAYE returns. However, if you pay them more than this or employ them for more than 2 consecutive weeks, then they must sign a P46. You will also need a National Insurance number for them. These are not usually issued until the age of 16 so it will mean requesting one early from the DSS.

If the taxman is sceptical about spouse wages he is even more doubtful about you paying your children, so you will need to keep a log of all the things they do for you. This should include a record of hours worked. You should also be able to give examples of work done. There is no need to pay the Minimum Wage below the age of 16 but any wages that are much higher than this may be challenged as excessive so it would be unwise to be too generous.

Finally, make sure you keep their wages separate from their normal pocket money or any other cash you might give them such as birthday gifts, payment for household chores or school dinner money. Give them proper payslips showing their rate of pay and hours worked. You should also pay them by cheque if they have a bank or building society account as cash payments are always difficult to prove without a proper receipt.

Acumen Tax Solutions
2 Purley Bury Avenue, Purley Oaks, Surrey CR8 1JB
Tel: 020 8406 9425 Mobile: 07813 582890 E-mail: info@acumentaxsolutions.co.uk

For information of users: Although every care has been taken in compiling this material, it only provides an overview and does not take the place of an individual consultation. We strongly advise all users to consult the detailed legislation or seek professional advice. Therefore no reponsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or this firm.