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.

Corporation Tax savings

The key benefit is the Corporation Tax saving for the business, and this can be anywhere between 19% and 25% of the gross salary, National Insurance and pension contributions.

How it works

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 into their 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. This means the cost after tax would be £9,787 if you pay tax at 25% or £10,570 if you pay tax at 19%.

This would result in a corporation tax saving for the business as follows:

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And the individual has £12,570 in their bank!

Important considerations when employing family members

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 as long of they are of working age

• Having a partner or family member as an employee opens up opportunities for the company to contribute to the individual's pension.

• The National Insurance cost may be covered by the employment allowance which is £10,500 meaning the first £10,500 of employers National Insurance costs are free. The only time you don’t get this is if the only employee is a director.  

One key thing is 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 reducing the company's corporation tax liability. However, ensuring compliance with regulations and maintaining genuine commercial justifications remain vital.

For tailored advice suited to your specific circumstances, please get in touch.