Family members may work in or own part of a business. Their roles, rights and payments need to be real and properly documented before considering the tax consequences.
A family relationship does not remove the normal rules for expenses, payroll or ownership.
Paying for work
Pay should relate to work actually carried out and be reasonable for that work. Record responsibilities, time and the basis for the amount paid.
Make the payment and retain evidence. An accounting entry alone does not establish that a family member has been paid a genuine wage.
Apply the relevant PAYE, employment and pension requirements. Work undertaken by children also needs to comply with the restrictions that apply to them.
Sharing ownership
Making a spouse or civil partner a shareholder or partner changes legal rights as well as tax treatment. Review rights to income, capital and control, and what happens if the relationship or business changes.
The settlements rules can affect arrangements that transfer income between people. A historical court decision is not a blanket approval for every family company or partnership.
Review the whole position
Personal allowances, other income and the way profits are taken out all matter. Use our Income Tax reference for current headline figures.
Do not set a salary solely by reference to an allowance or assume a family member has no other taxable income.
We can review the proposed work or ownership arrangement and identify the tax and documentation questions before changes are made.