Employing Your Children – Another Great Reason For Doing It

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Employing Your Children - Another Great Reason For Doing It

We have said it before Children are a joy! They are also a strain on your finances! Is there a way of employing your children within your business which allows you to pocket an overall tax saving and provide them with an income?

Employing Your Children - They Are A Joy!

Employing Your Children - They Are A Joy!

We talked previously about the 3 benefits to you of employing your children to you, your company and your children in a previous blog post.

Now we have discovered another great reason for employing your children - preserving your Employment Allowance.

Let’s look at why this is the case below.

What Is The Employment Allowance?

The Employment Allowance is a present from the Taxman.

Employers can reduce the amount of National Insurance contributions (NICs) they pay for their employees by up to £3,000 from April 2016. This is called the ‘Employment Allowance’.

Up to 1.25 million businesses and charities according to the Taxman will benefit from Employment Allowance. And around 450,000 of those businesses and charities won’t have to pay any employer National Insurance contributions at all.

So if you are an Employer that pays Class 1 National Insurance contributions on their employees’ and directors’ earning you are probably eligible to save.  All you have to do claim is to put a ‘Yes’ in the ‘Employment Allowance indicator’ field next time you send an Employment Payment Summary (EPS) to the Taxman through your favourite payroll software.

This can be worth nearly £205 in tax and National Insurance savings to a business.

There is even an opportunity to claim for previous years.  You can read all about it HERE or talk to your accountant.

Whilst this is good news for many business, Employment Allowance is sadly NOT allowed for every business such as:

  • you’re the director and only paid employee in your company.
  • you employ someone for personal, household or domestic work (eg a nanny or gardener) - unless they’re a care or support worker.
  • you’re a public body or business doing more than half your work in the public sector (eg local councils and NHS services) - unless you’re a charity.
  • you’re a service company with only deemed payments of employment income under ‘IR35 rules’.

So for many readers of our blog, who run their own company they might NOT be able to claim this Employment Allowance.

Employing Your Children - How Can It Help You Claim Employment Allowance?

Employing Your Children - Working Them Hard!

Employing Your Children - Work Them Hard!

So for an estimated 150,000 one-man band companies, the Taxman thinks he won't have to let them benefit from Employment Allowance.

This is not fair, but the rules as currently drafted state that there is no minimum amount that the employed earner must be paid, and nor is there is a minimum employment period.  There just needs to be a second employee.  The perfect role for your children to be employed, do something productive for your business and preserve the all important Employment Allowance.

Don't forget employing your children should be justifiable on commercial grounds and not solely as a means to secure entitlement for the allowance.

There is some thought that you could employ your spouse to preserve the allowance, but the Taxman would probably set a high earning bar in this case, and the overall savings could be not worth the hassle.

If in doubt talk to your accountant on how they can help you maximise you Employment Allowance.

Our Employing Your Children Call To Action

Employing your children is what we call win, win, win.

Do remember to take advice regarding the legalities of employing your children so it falls within the employment and workplace rules.

Do consult your accountant on the latest news from the Taxman on Employment Allowances and go through with you the numbers to make sure the maximum benefits do accrue to you at a price you can afford within your business and your household.

If you know of any other great reasons why employing your children can be good for your business or good news stories or tips for making this really work that can be shared with our readers then let us know via the comments or through LinkedIn.

Don’t be shy about employing your children in the business. It is still good for you, your bottom line. your business and for them!

The PJW Call To Action

If you want to talk to us about using more of our top tax tips to help your business save real money then do the following:

  1. subscribe to our blog
  2. contact us via LinkedIn
  3. email us at paul@pjwaccounting.co.uk
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If you like this set of tax tips then please do share it across Twitter, Tumblr, Facebook, LinkedIn and Google+ – where you will find us active on each social media platform!

Remember - Don’t Leave a TIP with the Taxman!

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