June 10, 2020 NB Accounting Services Limited

Can I employ my own children?

Children are staying at home as a result of COVID-19 lockdown. Also school summer holidays are approaching soon, unfortunately not showing a lot of promise that holiday destinations and clubs will re-open soon. If you have older children at home, you must be aware that it is an expensive and potentially frustrating time of year.

Moreover, it is harder now for young people to find temporary part-time jobs. When they are back at school or college they might not have the spare time to keep jobs in the long term. Meanwhile, having some work experience is more important than ever to differentiate yourself on UCAS forms and other training scheme applications. As a business owner, you have unique advantage over other people in paid employment and can do something about it.

Why not get your children doing some competitor research and exploring how you could be using social media more effectively – they will have a lot of valuable knowledge to contribute. Alternatively, you could let them develop a website for a new project. There are so many straightforward platforms available which do not require advanced development or digital skills.

Apart from the obvious financial considerations of paying salaries to your children as a good way to reduce your taxable profits you may consider to employ your children for other reasons, such as:

  • Giving them control over their finances and ensuring they adopt budgeting skills from an early age.
  • Early preparation for them taking the business over.
  • Installing a good work ethic into them.
  • Give them something productive to do with their time contribute too and gain professional skills.
Understanding the rules concerning employing children

If children are of the right age, it is entirely legitimate to employ your kids in your business. With some limited exceptions for specific jobs (e.g. acting or modelling) it is generally illegal to employ children under the age of 13.

Children under school leaving age may do ‘light work’ (such as office work) provided that it does not interfere with their education or affect their health and safety. Certain types of work (like factory or industrial work) are prohibited.

How many hours can child work?

School term-time rules

 Maximum hours per weekMaximum hours on schooldays or SundaysMaximum hours on Saturdays
13 – 14 year olds1225
15 – 16 year olds1228

School holiday rules

 Maximum hours per weekMaximum hours on weekdays or SaturdaysMaximum hours on Sundays
13 – 14 year olds2552
15 – 16 year olds3582

Other general rules for 13 – 16 year olds are:

  • Working hours must fall between 7am – 7pm, but not during the school hours.
  • The child must also have at least 2 weeks of uninterrupted holiday each calendar year.
  • They must have a rest break of 1 hour for every 4 hours worked.
  • Additionally, any business employing children under school leaving age must obtain a permit from the education department of the local council. Contact your local council’s education department or education welfare service for more information.

Meanwhile, once a child is over school leaving age but under 18, they are classed as a ‘young worker’. Consequently, they have different employment rights. Children aged 16 and 17 may work up to 8 hours per day, or 40 hours each week.  They are not allowed to work at night between 10pm and 6am.

On the other hand, 18 year olds and older are subject to the same employment rules as adults.

HMRC view on employing one’s own children

Employing your own children has been known to be used as a way of extracting money from companies to reduce company’s tax liabilities.

As a result, HMRC is aware of bad practice and does pick up on situations where procedures have not been followed correctly. As some recent HMRC cases have shown, anyone who employs a younger family member even on a temporary basis needs to fully document their responsibilities. Additionaly, they have to ensure children are undertaking legitimate activities that warrant the level of payment offered.

For example, a recent case involving a father and son (Nicholson vs HMR) demonstarted that HMRC can contest whether the employment is legitimate.  In this case the father (a sole trader) claimed on his tax return that he had been paying his student son regular wages of £150 a week. However, HMRC argued that the claim was not tax deductible. This was because no evidence existed to prove that the payments were made ‘wholly and exclusively for the purposes of trade’.

In fact, the son was delivering leaflets promoting the father’s business and his dad was making ad hoc payments plus helping with his food and drink expenditure. This would not normally be a problem. However, there were no records to prove that the payments were being made and no entries showing transactions on bank statements. Therefore, HMRC disallowed the claim.  Nicholson tried to appeal, but the right to appeal was rejected. Hence, the father was required to repay the tax that would otherwise have been due on that portion of his income.

How to get organised before giving your children a job?

If you are considering employing one of your children, ensure you do the following so that you can answer any questions later asked by HMRC:

  1. Create a detailed job description stating exactly what they are expected to do and the timeframes they are employed for. Make sure children are only working the hours they are legally allowed to work.
  2. Ensure they are an appropriate age to be doing the work. It is illegal to employ anyone under the age of 13.
  3. Make sure you are paying them legal minimum wage and are following average market rates and not excessively remunerating them. If HMRC believes they have been overpaid, you may have to repay the excess in taxes. Therefore, ensure that salary is justifiable by the amount of work that they actually do for the business. Generally, salary should be the amount you would pay a non-connected third party with the same level of experience to complete the same job.
  4. Finally, ensure there is a direct link between the PAYE records, the business bank account and their bank account. So that all payments to them can be traced and understood in the event of a query.

In conclusion, if you follow these basic ground rules, there is no reason why you cannot offer some work to your children. Get them earning some extra money while keeping them off their devices and doing something useful.

Teenagers involved in business meeting
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