Financial Strategies
January 10, 2024
  •  
5 mins

Tax Benefits of Employing Family Members Through a Limited Company

Gravitate Accounting

Have you considered the potential tax benefits of employing a family member within your limited company? Whether it's your partner or children who are legally eligible to work, this strategy can offer substantial advantages for both the business and your family.

The key benefit is the corporation tax saving for the business, and this can be anywhere between 19% and 25%.

Now let’s assume you have a partner who has no other income, and your company is paying tax at 25%. You can pay your partner a salary of £12,570 and they will not pay any PAYE (pay-as-you-earn-tax) or any national insurance, meaning they will receive the full £1,048 in there bank each month.

At £12,570, your company will have a small amount of Employers National insurance to pay around £479. So as your partner has received £12,570, your company has a total cost of £13,049 but this is a tax-deductible expense to the business therefore the cost after tax would be £9,787. This would result in a tax saving of £3.2k and £12.5k extracted with no personal tax paid.

Here are some additional points for you to consider:

  • You could employ your children on a similar basis for example in a part time roll.
  • Having a partner or family member as an employee opens up the opportunity for the company to contribute to the individuals pension.
  • The National Insurance cost may be covered by the employment allowance which is £5k meaning the first £5k of employers National Insurance costs are free. The only time you don’t get this is if the only employee is a director. BUT…and this is important! There must be commercial justification for the work completed. You can’t pay someone £12,570 for a couple of hours a month.

Employing family members within a limited company can create significant tax advantages, strengthening both family finances and the business's bottom line. However, ensuring compliance with regulations and maintaining genuine commercial justifications remain vital.

For tailored advice suited to your specific circumstances get in contact with us here.

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