10 tax tips for parents running their own business

By: Raphael Coman

Date: 11 January 2010

When you operate your own business, bringing a child into the world is a costly matter. The good news is the government offers additional financial support you might not be aware of. The following tips are intended to make sure you get all of your state entitlements.

1 For company directors: make sure you receive the correct maternity, paternity or adoption pay
If you run a limited company, you will pay yourself as a director. Provided you meet the qualifying criteria regarding length of your employment, you are entitled to money your company can recover from the government. If you’re female and are taking most of your income out as a dividend, you will at least qualify from minimum statutory maternity pay (currently £123.06 per week). You can receive this for up to 39 weeks. Partners, of course, qualify for paternity leave, while those who adopt also have a legal right to paid leave.

2 For sole traders and partners: check if you can obtain maternity allowance
If you are not entitled to statutory maternity pay, you could be entitled to the maternity allowance paid by the Department of Work and Pensions. If you were self-employed for at least 26 out of the 66 weeks before you your baby is due, you qualify. The benefit is 90 per cent of your average weekly pay or £123.06 per week if higher.

3 Receive your one-off Health in Pregnancy Grant.
Since 6 April 2009, mothers who are 25 weeks into their pregnancy have been able to apply for a £190 grant towards the cost of pregnancy and childbirth. HMRC will make the one-off payment direct to the mother’s bank account, which she can spend as she chooses. It is not means-tested and will not affect entitlement to other benefits. Claim forms are available from your doctor or midwife.

4 Apply for Child Benefit
Register for Child Benefit as soon as your first baby is born. You will receive £20 per week for your eldest child and £13.20 per week for each of your other children. The benefit is not means-tested. You will receive the benefit until your child reaches 16 (or 20 if in certain kinds of education). A claim can only be backdated three months, so don’t delay.

5 Get your Child Trust Fund voucher
Save tax-free for your children by opening a Child Trust Fund. Accounts are available to all children born after 1 September 2002 and up to £1,200 can be added each year. The government will send you a £250 voucher to open the account and pay in a further £250 on the child’s seventh birthday. All income and gains are built up tax-free until your child’s eighteenth birthday, when funds can be withdrawn or rolled over into an ISA.

6 Apply for Child Tax Credits
Make a claim for Tax Credits, if you have children aged below 16. The credits are means-tested, but you only start to lose your entitlement to the child element when household income exceeds £50,000.

If you return to work, you may be eligible for working tax credits where you work or you and your partner (if applicable) work. If so, you may also be entitled to help towards childcare costs. If your earnings have gone down because of pregnancy, it would pay to make a protective claim rather than one based on the previous year’s earnings.

7 Set up a salary sacrifice scheme for childcare costs
Receive some of your pay from the company in the form of childcare reimbursement. The first £55 of childcare vouchers paid through the company is a tax-free benefit, and if paid instead of salary it will also reduce your National Insurance liability.

8 Have assets transferred to your children and save tax
Your children can receive income of up to £6,475 per year before being taxed. However, parents are taxed on income of more than £100 on assets they have transferred to their children who are under 18. Assets should preferably be transferred from grandparents or other relatives.

Children can also make gains of up to £10,100 tax-free. Transferring assets with better potential for capital growth, rather than income, is generally more tax-efficient. A share in the family business may be suitable.

9 Contribute to your child’s pension scheme
You can put up to £2,880 into a Children’s Stakeholder Pension for each child and the government will add a further 20% to your contribution. Income and gains in a pension scheme are tax-free, but your child will not be able to access the fund until they are 55.

10 Employ your children
Subject to conditions, you may make your children employees of your business, if they are aged 13 years or more. Your business will get tax relief on the wage payments, while the first £6,475 of income is tax-free in the hands of your child. You must consider the legal implications of employing children aged between 14 and 18.

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