Tax tips for business mums

By: Amy Taylor

Date: 12 March 2010

If you're a mum in business, there are a number of areas that could be of benefit to you. As well as making sure you are claiming Child Tax Credits, you could try the following:

Not paying Class 2 National Insurance Contributions
Currently £2.40 a week, Class 2 National Insurance Contributions don’t have to be paid if you earn below £5,075 in 09/10, but make sure you understand that you will be giving up rights to incapacity allowance, basic state pension and maternity allowance. Claim a deferment and you can save £2.40 a week (09/10 rate). You are eligible for state pension anyway if you have children under 12. Make a claim on http://www.hmrc.gov.uk/forms/cf411.pdf.

Investing in The Child Trust Fund
The Child Trust Fund is available to all children born on or after 1 September 2002. The government will give you a voucher for £250 which you can invest in a Child Trust Fund savings account of your choice, and they will give you another £250 when your child is seven. If you have a relatively low household income, you may also receive another payment. You, your friends or family, can top up the fund by up to £1,200 annually and there are no taxation impacts. The fund will be available to your child when they reach 18.

Setting up a pension for your children
An even better place to invest for your child’s future could be in a pension. Obviously this is a long term investment and would not be available from age 18, but many parents may consider that an advantage. Stakeholder pensions are available to non earners and children, and you can invest £2,880 a year, which is then topped up to £3,600 by HMRC.

Making sure interest on savings accounts is tax free
In most cases, your children should be receiving interest on their savings tax free. If this is not the case, complete form R85 and take it to the bank to make sure interest is paid tax free.

Involving children in your business

  1. Give them shares in your company.
    If you are incorporating your business, it could be worth giving your children some shares whilst they are not worth very much. If you decide to give them some shares later when they are worth more, the transfer could be subject to capital gains tax. However, you should bear in mind the voting rights of the shares, and the proportions gifted to make sure you are not at risk of undue influence from your children at a later date. You should also be aware that any income derived from a parental gift is taxed over £100, so any dividends you made would be taxable in your hands.
  2. Employ them.
    When your children are old enough (current legal guidance indicates age 13), there is nothing to stop you employing them in your business. There is no requirement to pay your family national minimum wage in a family owned business and their salary will be tax deductible. Not only that, but they will have their own personal allowance of £6,475 (09/10) and hence if you pay them at that level, they will pay no tax on it. From web sites, to book-keeping, to filing and despatching goods, there are many ways that your children could help you grow your business and learn valuable skills at the same time.

Amy Taylor Accountancy takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Amy Taylor Accountancy.

Amy Taylor, Amy Taylor Accountancy

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