Employing Family Members
Many businesses choose to employ a family member. Whilst providing a reliable employee for the business, that staff member may also benefit from lower rates of tax and, particularly for younger members of the family; it provides them with an income of their own. However, businesses doing so have to remember to treat them as any other member of staff in respective of employment legislation.
A recent case has highlighted the fact that care needs to be taken when employing a family member to ensure that they are a legitimate employee; otherwise H M Revenue & Customs (‘HMRC’) could deny the tax advantages to both the business and the individuals involved.
If you are going to pay a family member there are a number of factors that should be considered:
- It is important that there is a genuine business reason for paying them a wage.
- The family member should be paid a commercial rate for the work they actually carry out.
- You will need to pay them at least the National Minimum Wage as you would any other employee.
- You be required to check if they need to be provided with a workplace pension scheme.
- If younger family members are employed, working time regulations will need to be followed.
- National insurance contributions may have to be paid on their behalf.
- You must actually pay the money to the family member.
The last point in particular was highlighted in a recent case. A business owner decided to employ his son in order to provide funds to pay for the son’s university tuition and other costs. Whilst the son did actually carry out work for the company, the father used the son’s wages directly towards paying the university costs rather than paying the money to the son. As a result HMRC considered that no employment was occurring since no actual payment was made to the son, So whilst this may seem a good way to assist with a child’s education costs by providing them with a paying job, care needs to be taken in order HMRC recognize it as an actual employment and to avoid the deduction for the salary costs being denied.
Therefore, it is important to ensure that any wages or salaries due to a family member are actually paid to the family member concerned, and that proper records are kept to show payment was made and that work was actually performed just like you would for any other employee.
If you have any questions regarding the employment of a family member or any of the points raised above, please contact our Tax Director, Jenny Marks, for more information.
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