How much can you pay family members earning their keep?

A lot of business owners are assisted by family members in the day to day running of the their business but are often unsure about whether these amounts can be claimed as a deductible expense.

As with all business expenses, the cost needs to be wholly and necessarily incurred for the purpose of the trade. It is important to consider what the business gets out of the arrangement, rather than focusing on who has been paid. HMRC state that as long as the business is receiving value for what is being paid then the amount is fully deductible regardless of who the recipient is.

The business owner must demonstrate the value of the service whether it be removing weeds from the drive, repairing a wall or doing the filing. As long as a service is provided to the business and fulfils a function then it qualifies.

For example, your son is asked to file some Company expense forms and is paid a total of £20 per week to do this, amounting to £1,040 per year. If you are a higher rate taxpayer, this would cost you £1793 of your income (assuming 40% tax and 2% NIC). If the business pays them, it costs you nothing and only costs your business £624 (assuming you are a sole trader) or £832 (if you are a Company paying 20%) tax.

The savings can be significant but will be dependent on income levels of all concerned, check with your usual contact at OBC.  With the new HMRC rules on payments it is now vital any payments meet the RTI regulations, contact Katy Biffen our expert for further details katyb@obcaccountants.com

 

 

 

 

 

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