EMPLOYING FAMILY MEMBERS
Profit extraction is a complicated issue for all small businesses.
Employing family members provides an opportunity to maximise extraction of cash from your business in a tax efficient manner, by employing family members it allows you to take advantage of personal allowances and basic rate bands which otherwise would have gone wasted.
However, its important to make sure the correct procedures are put in place to ensure that HMRC don’t reject the employment.
- Avoid paying family members above the market rate for the specified job
- Make sure the wages are actually paid, HMRC will want to see details of bank payments made to employees
- When employing younger family members, you must ensure you adhere to working time regulations – for example, children can only work full time after the age of 16
- Remember to include family members in your workplace pension scheme
It is also possible to go one step further and include family members as shareholders of your limited company. This allows you to declare dividends to them and take advantage of the lower rate of personal tax on dividends.
Kala Atkinson is a family owned accountancy practice in East London. We’re experts in small and medium sized businesses and self employed businesses.
For further information on how we can help you, get in touch today.