Many business owners involve their children in the family business from an early age. They might help with filing, packing orders, social media, cleaning the office or carrying out simple administrative tasks after school or during school holidays.
This often leads to an important question:
Can I pay my children through my limited company?
The answer is yes, but there are rules you must follow.
Your children cannot simply receive money from the company because they are family members. Like any employee, they must genuinely work for the business, be paid a reasonable amount and the company must keep appropriate records.
If the arrangement is genuine, paying your children can be an effective way of rewarding them for work they actually perform while teaching valuable workplace skills.
The short answer
Yes, a limited company can employ children.
However, they must:
- Carry out genuine work.
- Be paid a commercial wage for that work.
- Comply with employment law.
- Meet any age restrictions that apply.
- Be included in the company’s records correctly.
Simply paying children to reduce the family’s tax bill is unlikely to satisfy HMRC.
Why would a business employ children?
Many family businesses already involve children in day-to-day activities.
Examples include:
- Filing paperwork.
- Shredding confidential documents.
- Organising stock.
- Packing customer orders.
- Cleaning work areas.
- Social media content.
- Photography.
- Simple data entry.
- Preparing marketing materials.
- Helping at exhibitions.
- Answering basic telephone enquiries.
As children get older, they may take on increasingly responsible roles.
Does the work need to be genuine?
Absolutely.
HMRC expects every employee to carry out real work.
If your child receives a salary, you should be able to explain:
- What they do.
- How often they work.
- Their responsibilities.
- Why the business needs them.
If there is no genuine work being performed, the salary may be challenged.
What is a reasonable salary?
The amount paid should reflect:
- The child’s age.
- Their experience.
- Their duties.
- The number of hours worked.
- Market rates for similar work.
For example, paying a teenager a reasonable hourly rate for helping with administration during school holidays is generally much easier to justify than paying a management-level salary for occasional help.
Are there age restrictions?
Yes.
Employment law places restrictions on employing children, including:
- Minimum working ages.
- School attendance.
- Working hours.
- Night work.
- Health and safety.
These rules exist to protect young workers.
Before employing younger children, employers should ensure they understand the relevant employment legislation.
Should they be on payroll?
Where payroll obligations apply, yes.
The company should:
- Register them correctly.
- Keep payroll records.
- Record hours worked.
- Maintain wage records.
- Keep employment documentation.
Being a family member does not remove normal employment responsibilities.
Should there be an employment contract?
Although family businesses are often informal, written agreements are considered good practice.
This may include:
- Job title.
- Duties.
- Working hours.
- Pay rate.
- Holiday entitlement.
- Start date.
These records help demonstrate that the employment is genuine.
Does the company receive Corporation Tax relief?
Where the salary represents genuine employment costs incurred wholly and exclusively for the purposes of the business, the company will generally treat those wages as a deductible business expense when calculating taxable profits.
However, the salary must still be commercially reasonable.
Can children work during school holidays?
Many family businesses employ children during school holidays.
This may include helping with:
- Administrative work.
- Customer service.
- Marketing.
- Warehouse organisation.
- Filing.
- Office support.
Any work should remain suitable for their age and comply with employment legislation.
What if my child helps occasionally?
Occasional assistance may still be genuine work.
However, if work is irregular, salary payments should reflect the actual duties performed rather than being fixed amounts with little connection to the work completed.
Keeping timesheets can be particularly useful.
What records should I keep?
Businesses should retain:
- Employment contracts.
- Payroll records.
- Timesheets.
- Job descriptions.
- Bank payment records.
- Wage calculations.
- Holiday records.
Good documentation provides evidence if HMRC ever reviews the arrangement.
Common mistakes
Business owners sometimes:
- Pay children who perform no work.
- Pay excessive salaries.
- Keep no timesheets.
- Fail to operate payroll correctly.
- Treat pocket money as wages.
- Ignore employment law.
These mistakes can create unnecessary tax complications.
Frequently Asked Questions
Can my limited company employ my son or daughter?
Yes, provided they genuinely work for the business and all relevant employment and tax rules are followed.
Does the salary reduce Corporation Tax?
Where the wages are genuine business expenses, they are generally deductible when calculating taxable profits.
Can my child work after school?
Potentially, yes, subject to employment law and age-related restrictions.
Do I need to keep records?
Yes. Employment documentation, payroll records and evidence of work completed should all be retained.
Can I pay my child whatever I want?
No. The salary should be commercially reasonable for the work actually carried out.
Final thoughts
Employing your children can be an excellent way to introduce them to the world of work while providing genuine support to your business.
The key is ensuring the arrangement reflects commercial reality.
The work should be genuine, the pay should be reasonable and the company should keep proper employment and payroll records throughout.
At Merranti Accounting, we regularly advise family businesses on employing spouses, partners and children. We can help ensure your payroll is compliant, your records are complete and your business receives the available tax relief while staying within HMRC’s rules.
Written by Steve Watts
