Tax rules about employing family members

Tax rules about employing family members

November 28, 2011 by Elaine Clark

Paper familyOn the face of it, employing family members can be a good idea. You know them well, so all of the issues of trust and reliance on a stranger should be eliminated.

However, the existence of the family relationship does not bypass any employment laws or any issues relating to tax. Knowing your duties in this area is essential to not falling foul of the law and incurring fines or penalties.

Can I employ my partner or spouse in my business?

Regardless of your business structure (sole trader or limited company) you can employ your partner or spouse in your business.

The general rule is that your partner or spouse should be paid for the effort and hours worked in your business. You must pay your partner or spouse at least the national minimum wage (you can’t get away with paying less).

Where the amount earned exceeds the “lower earning limit” (currently £102 a week, £442 a month or £5,304 a year) you must register as an employer with HM Revenue Customs (HMRC), complete the required PAYE records and file annual returns.

So, just like employing anyone else, you must comply with the tax laws.

What about company directors?

Directors of limited companies who hold office and do not have a contract of employment are outside of the scope of the national minimum wage (see the Directgov website for further information)

This means that a director can be paid an amount that does not incur tax or national insurance.

What about employing my children?

Subject to employment laws, you can employ your children in the business. Again you must pay them the relevant national minimum wage for the hours they work.

It may also mean that because of the payments made to your children you must register with HMRC as an employer. Be sure to check or else you could incur fines and penalties.

What if my offspring are students?

If you employ a student at any time other than their normal holidays, you operate PAYE as normal. However, if you have children at college or university and you employ them solely during the summer, winter or Easter holidays, you may be able to apply special rules to their pay which can make the administration simpler and negate the need for you to register as an employer with HMRC.

If you meet this criteria, you may be able to pay the student without deducting tax, although in most cases you will still have to deduct and account for national insurance. Full details can be found on the HMRC website.

Where can I go for more advice?

Employing anyone is complicated and a minefield of rules and regulation. To ensure that you do follow the rules on this it is always best to seek specific advice from your accountant who will know and understand your circumstances and can make sure that you adhere to the tax laws and your solicitor for employment law issues.

Using 20 years’ experience spent working at some of the UK’s leading businesses, award-winning chartered accountant Elaine Clark is the founder and managing director of, an online accounting service aimed at small businesses with big ambitions.

See our Tax Donut for more detailed information on UK tax

Posted in Employees | 12 comments


Anonymous's picture

Hi my wife and I have just bought an established business and I also own my own business in my own name. My wife and I are going to equal partners of the new business and will both be on the payroll . Can we both get the tax free allowance of the £11,000.00 per year?


Anonymous's picture

Recently my wife left her job because she did not want to work in the environment she was in. I run  a leaflet and magazine distribution business. I am  a sole trader with no employees and submit a yearly tax return. The profits made from the business pay for general living expenditure. On the odd occasion she has been  out and done a few hours work for me when needed. Now she is out of work completely she is interested in helping out more. To the degree that he does help the business will get more work done for which it will be paid. She has not asked to be paid for the work because we are a couple and share financial  obligations. How does this classsify legally and in terms of tax and where could I find the important information that governs this setup if it were to develop?

LizD's picture

I'm afraid we can't give individual advice, although the blog above indicates that the law applies equally to employing family and non-family members. You will find more information on the Tax Donut and on HMRC's site.


Anonymous's picture

My 11 year old son runs his own website. Clever chap gets a couple of grand a year from advertising for little more than maintaining it. Is this TAX something I have to declare?

Anonymous's picture

Good evening. I found this article to be very usefull in terms of rules and laws which need to be followed. However, i have a question of a more moral nature. At which point does the law intervine when family members receive more understanding or are favoured(based only on their family relationship, not their performance) in comparison to other employees? Is this not a form of discrimination?

LizD's picture

There's a useful section on discrimination on the Law Donut which covers equal pay and equal treatment which you might find useful in answer to your question.

The Donut Team

Anonymous's picture

Just to say that the amounts for the tax year 2014 / 2015 are £111 a week, £481 a month or £5,772 a year.

To answer your question – if you employ your son at below £111 / week then you may not need to register if he is your only employee. Other conditions do apply - You can read the full information about this on the HMRC web site at:

You’d show this in your accounts as a wages cost (debit wages / credit bank)

Hope this helps.



Anonymous's picture

Hi it says here: "Where the amount earned exceeds the “lower earning limit” (currently £102 a week, £442 a month or £5,304 a year) you must register as an employer with HM Revenue Customs (HMRC), complete the required PAYE records and file annual returns" So does this mean if I employ my son at £101 or less per week I do not have to do PAYE or register?  If that is the case, how would I show this on my business accounts? I work from home and as my home is still incomplete I am unable to get insurance, this means employing anyone other than family (who already live here anyway) is not an option.  But I could do with some help, and my son might as well be the one to be paid as any one else!

Anonymous's picture

Can I pay my son through paye even if he does not work or contribute to the buisness

LizD's picture

For general guidelines on employing family members, have a look at this section of the Law Donut. To check the tax and legal implications you could call HMRC on 0300 200 3200.

The Donut team.

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