Family and Children Tax Planning with KPN
At KPN, we recognise the tax-saving opportunities that can arise when employing family members or planning income and benefits for your spouse or children.
However, these strategies require careful implementation to ensure compliance with HMRC regulations and avoid unnecessary scrutiny.
Our tailored advice helps you maximise tax advantages while staying fully compliant.
Employing Family Members: Key Guidelines
Fair Remuneration
Wages must meet or exceed the National Minimum Wage (NMW) or National Living Wage (NLW). They must also be “wholly and exclusively” for business purposes, and job roles should align with the arm’s-length principle to avoid challenges from HMRC.
Employment Contracts
A clear, written contract of employment helps justify roles, wages, and benefits, providing strong evidence if HMRC raises questions.
Comparability Wages
Wages paid to family members should align with market rates for similar roles to avoid excessive scrutiny.
National Insurance Contributions (NICs)
- Employees pay 12% on earnings between £12,570 and £50,270, and 2% on earnings above £50,270 (2023–24 rates).
- Employers pay NICs at 13.8% on earnings above £9,100.
Self-Employed
Self-employed family members pay Class 2 NICs (£3.45 per week) and Class 4 NICs (9% on profits between £12,570 and £50,270, and 2% above this threshold).
Employing Children: Compliance and Benefits
Understanding PAYE and NICs
PAYE and NICs must be applied under an employment contract.
Wages and children
Wages must reflect actual work performed, particularly for minor children, to avoid triggering settlements legislation that could reallocate income to parents.
Under school-leaving age
Children under school-leaving age face restrictions on the type of work they can perform.
For Spouses
Consider whether to employ your spouse as an employee or create a partnership with them. This may reduce Employer NICs and eliminate benefit-in-kind charges for assets like vehicles.
Align their wages with personal allowances and other tax thresholds to maximise efficiency.
For Families
Employee benefits such as employer pension contributions, mobile phones, healthcare, and working-from-home allowances (£6 per week) can optimise family remuneration packages.
Evaluate child tax credits and working tax credits to ensure the household benefits fully while complying with regulations.
Tax Planning Strategies
Long-Term Planning
Regularly review employment arrangements, wage levels, and benefits to ensure they remain compliant with updated legislation.
Our team at KPN provides ongoing advice and support, ensuring your tax strategies are robust, compliant, and optimised for family and business success.