Are your children tax-efficient? Get them working for you and save tax at the same time.
Children are entitled to the same income tax personal allowance as their parents, in the current tax year £11,000. Parents who are higher rate tax payers, will need to earn £8,333 if they want to enrich a son or daughter by £5,000. Your child would need to earn £5,000 as no tax would be payable (on the assumption that their total income including the £5,000 is under £11,000). Indirectly, this would save your business £3,333.
The key to employing your kids in the business is to make sure that any involvement is commercially justifiable. For example, paying your ten-year-old £6,000 a year for bookkeeping support will not pass muster with HMRC. You should always aim to pay realistic rates for the job undertaken and ensure that the tasks are manageable.
There are rules about the number of hours children can work per week – this won’t affect a few hours helping you out, but if you want to pay them any more than that then you need to check out the rules. If you go over the NI threshold you will also need to operate a proper payroll but for amounts under approx. £150 per week there will be no tax or NI payable.
You also have to actually hand over the cash! Pay it into their bank account from your business account. What happens to it then is up to them (or you – depending on your relationship with your kids!!)
So get your kids helping you out (after all – they will be much quicker updating your website or researching etc than you anyway) and pay their pocket money from the business!