Employing family and tax/pensions

KC111

Hi

Does anyone know if you can employ your own daughter for Saturday work and pay into her stakeholder pension (which is already set up), as she would then technically be an employee, could this amount be taken off the gross profit before calculating tax or not ? I was told that any contributions an employer makes into a pension fund for an employee is not classed as taxable profit but not sure this applies if it is a family member. She stills gets her tax relief on the pension contributions which I assume will still continue to happen even if she is classed as an employee. Just one other question, what is the minimum age a child must be before they can work a Saturday morning, has anyone employed a young person?

Thank you.

WHA

Regardless of family connections you can give her a remuneration package appropriate to the hours worked and the skills needed etc.

Re your stakeholder pension idea, I think the best way would be for you, as an employer, to pay her the wage she earns. You get tax and NIC relief as it is a deduction from profits. She can then use some of the money she has earned to pay into a stakeholder pension - individual contributions are paid net of tax, so she'd only pay in 78% and the Govt pays in the other 22%.

Remember that an individual pays the 78%, but an employer contribution pays the full 100% and has to claim tax relief as an expense.

If she is doing enough work to earn the amount you want to pay into a pension, then it is better to pay her a wage and for her to pay into the pension. If she isn't doing enough work, then you may be better just paying into her stakeholder pension on her behalf, completely outside the business.

hopon

WHA wrote: »

If she is doing enough work to earn the amount you want to pay into a pension, then it is better to pay her a wage and for her to pay into the pension. If she isn't doing enough work, then you may be better just paying into her stakeholder pension on her behalf, completely outside the business.

But by paying it in yourself outside of the business you would be using your own taxed income, certainly not the best if you are a higher rate tax payer.

There is a summary of the legal implication of employer young people here.

As long as you are paying a reasonable salary for the job undertaken then there is nothing to stop you employing family members and paying them (and their pension funds) accordingly. Beats paying pocket money out of your own taxed income

silvercar

hopon wrote: »

As long as you are paying a reasonable salary for the job undertaken then there is nothing to stop you employing family members and paying them (and their pension funds) accordingly. Beats paying pocket money out of your own taxed income

:j :j :j

Thank you so much, something I had not thought of.

pjala

I was told the taxman look very carefully (suspiciously?) at employing family members, is this true?

dunstonh

There are a few ways to abuse the tax system using family members to reduce your tax liaiblity. It is tax fraud in those cases but where it is legitimate, you will have no issues.

employing a 2 year old to utilise their personal allowance and reduce your taxable income down wouldnt go down well with HMRC.

silvercar

employing a 2 year old to utilise their personal allowance and reduce your taxable income down wouldnt go down well with HMRC.

Fair enough as children under 13 are not allowed to work, but a 16 year old answering the phone and doing filing and general office stuff, when you work from home - looks more legitimate.