Under UK law, it is legal for a limited company to employ the director’s or shareholder’s children. When executed correctly, this can be both commercially sensible and tax‑efficient for businesses. However, strict child employment laws and HMRC rules must be followed. This ensures the arrangement is valid and safe for the child and business.
At what age can you employ your child?
Unless they are doing licensed performance work, such as acting or modelling, children under 13 cannot be employed.
For children aged 13-15, they are allowed to be employed for light work only. However, they need a local authority work permit and have strict limits on working hours and times. The work also must not interfere with their schooling or wellbeing.
For children aged 16-17, they can be employed in the same way as other employees. But they have shorter maximum working hours, mandatory rest breaks, and must be paid the youth rate of the National Minimum Wage.
Young people over 18 can be employed in the standard way.
Can employers hire family members?
When employing family members, the employer must ensure the role is real. The work must also be necessary and completed.
The types of work and duties should be clearly defined and age-appropriate if the employee is under 18.
The arrangement must stand up to scrutiny as if the employee were unrelated to the employer.
Typical acceptable duties include:
- Administrative support
- Filing, scanning, and data entry
- Basic bookkeeping assistance
- Social media or marketing support
- Stock handling or ecommerce assistance
Arrangements that exist purely to extract profits or shift income, without genuine work being done, are likely to be challenged.
Can you pay a family member to work for you?
The employee’s pay must reflect what the company would reasonably pay an unrelated employee for the same duties. It is disallowed as a corporate tax deduction, and the pay must be at least minimum wage for employees 16+ or a reasonable amount for children under 16. Limited companies must follow minimum wage rules, even if it is a family business.
How does PAYE, Tax and National Insurance work for family members?
Children must be registered as employees and payroll must be run through PAYE. Payslips and Real Time Information (RTI) submissions are also required.
Often, if their earnings are within the child’s personal allowance, they will not have to pay income tax. National Insurance is also often nothing if earnings are below the relevant thresholds.
As long as all conditions are met, wages are an allowable business expense and can reduce your corporation tax.
What records do you need to keep when employing your child?
Good record‑keeping is essential when employing any staff, but especially children. We strongly recommend retaining:
- A written employment contract or agreement
- The employee’s job description, their timesheets or task logs
- Payslips
- Evidence of work they’ve completed
- Proof that wages are paid into the child’s own bank account
HMRC challenges commonly arise not because employing children is prohibited, but because the evidence is insufficient.
Other necessary obligations
Employers must ensure their Employer’s Liability Insurance covers young workers and they must complete a basic risk assessment for under-18s.
Pension auto‑enrolment should be reviewed (although this is usually not applicable due to age/earnings). Lastly, you should consider the impact of work on Child Benefit or other means-tested benefits.
How can employing family members improve business taxes?
When done correctly, employing children can use unused personal allowances and reduce your family’s tax bill. It can also lower your corporation tax and provide valuable work experience.
HMRC accepts these arrangements where they are commercial, proportionate, and properly documented.
Employing your children through a limited company is legal and potentially tax‑efficient when done correctly. However, there is a high‑risk if the arrangement is poorly documented or artificially structured.
The safest approach is to treat the child like any other employee. Adjust only for age-related legal requirements.
At J Sweeney, our professional accountants can help you follow best practice when hiring children or family members. To learn more, email our team at [email protected] or call us at 01604 950034.
