Tax tips – Employ your family
You could hire/employ a member of our family who earns nothing else to work in your family business, saving significant amount of tax for the family as a whole.
To prevent an HMRC attack, care must be taken to ensure that the arrangements are commercial and that the level of payment is appropriate for the work performed.
Although the National Minimum Wage legislation does not apply to directions unless they have a contract of employment, it must still be taken into account.
Johan’s wife Kelly has no income but spends a considerable amount of time answering the telephone in John’s home office and dealing with emails and correspondence. She also has the task of keeping track of the accounts, for which she is not paid.
By paying her salary, he can reduce his own exposure to higher rate tax and utilise her personal allowance and, depending on the level of salary, her basic rate band, and reward her for the efforts she puts in on behalf of the business.
For example, assuming that Kelly has no other income, paying a salary equal to her personal allowance of £12,570 and reducing the salary paid to John (a higher rate taxpayer) by the same amount will save tax of £5,028 (£12,570 @ 40%). This simple strategy can save several thousand pounds in tax along the way.
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