Hi again everyone,

What I want to talk to you next relates to an issue I see every now and then, which is people using family members to try and use up their tax bands and pay less tax. 

In theory it’s a good idea, but there is one thing to be wary of.  HMRC can challenge anything that seems artificial.

For example, if you have say, an 18 year old son or daughter at University who could clearly only work a couple of hours a week and you are paying them a full salary of £20,000 so that you don’t have to pay a higher rate tax on it, then HMRC could well take you to a tribunal and say that this is impossible due to his/her other commitments and this is only being done for the tax implications.

When I am working for my clients, one of the key things I always try and make sure they understand is that whenever they are mixing business with pleasure and they have got family members involved in anything, is to keep good records about what that family member is doing and why it is necessary for their business.

Then further down the line if, for whatever reason HMRC do challenge it, then at least they can go back and say well these are all the emails my family member sent when they were working for me, these are all the tasks they completed in my business and this is why they were doing it, it was very much genuine employment and they have no grounds to challenge this. That is one way you can protect your interests.

We are a firm of accountants based in Northampton and work with small businesses in Northampton and the surrounding areas.  If you are interested in finding out about other things you can do to make sure that any family members working in your business won’t create a tax risk for you, then please get in touch with us.