Lesley Stalker of RJP LLP explains what you need to know about employing your own children over the summer holidays.
We are now well into the school summer holidays and if you have older children at home, you’ll be only too aware that it’s an expensive and potentially frustrating time of year.
They can be a big distraction to keep entertained, not to mention costly, and inevitably they will spend a lot of time on devices – probably way too many hours to be good for them either mentally or physically.
When you were at school, you may have had a holiday job over the summer but unfortunately, it’s harder now for young people to find temporary part-time jobs. When they are back at school or college they might not have the spare time to keep jobs in the long term, either.
Yet ironically, having some work experience is more important than ever to differentiate yourself on UCAS forms and other training scheme applications. As a business owner, you have unique advantage over other people in paid employment and can do something about it.
Why not get them doing some competitor research and exploring how you could be using social media more effectively – they will have a lot of knowledge to contribute.
Alternatively, you could get them developing a new website for a pilot project. There are so many instant platforms available now – it’s not essential to have development skills, and as digital natives they’ll pick up on trends you might not have spotted. Perhaps they have other creative or organisational skills to contribute too.
Understanding the rules concerning employing children
Provided they are of the right age, it is entirely legitimate to employ your children in your business and can be an excellent way for them to develop some professional skills and work experience for the future while earning some extra money.
How many hours can they work?
During the school holidays, 14-year-olds can work up to 25 hours a week, including a maximum of five hours on weekdays or Saturdays and two hours on Sundays. Moving up, 15 and 16-year-olds can work up to 35 hours a week, with a maximum of eight hours on weekdays and Saturdays and two hours on Sundays.
Once a child is over school leaving age but under 18, they are classed as a ‘young worker’ and have different employment rights: those aged 16 and 17 may not work more than eight hours a day, or 40 hours a week, nor usually at night between 10pm and 6am. They cannot opt-out of the 40-hour limit, but there are exceptions.
What if you employ your own children?
Employing your own children has been known to be used as a way of extracting money from companies to reduce tax liabilities.
As a result, HMRC is aware of bad practice and does pick up on situations where procedures haven’t been followed correctly. As some recent HMRC cases have shown, anyone who employs a younger family member on a temporary basis needs to fully document their responsibilities and ensure they are undertaking legitimate activities that warrant the level of payment offered.
For example, a recent case involving a father and son – Nicholson vs HMRC – illustrates how HMRC can contest whether the employment is legitimate. Here the father, a sole trader, claimed on his tax return that he had been paying his student son regular wages of £150 a week, but HMRC argued that the claim was not tax deductible.
This was because no evidence existed to prove that the payments were made ‘wholly and exclusively for the purposes of trade’.
In fact, the son was delivering leaflets promoting the father’s business and his dad was making ad hoc payments plus helping with his food and drink expenditure.
This wouldn’t normally be a problem, but because there were no records to prove the payments were being made and no entries showing transactions on bank statements, the claim was disallowed. Nicholson tried to appeal, but the right to appeal was rejected and he was required to repay the tax that would otherwise have been due on that portion of his income.
How to get organised before giving your children a summer job
If you are considering employing one of your children for the remainder of the summer, ensure you do the following so that you can answer any questions later asked by HMRC:
- Create a detailed job description outlining exactly what they are expected to be doing and the timeframes they are employed for – make sure they are only working the hours they are legally allowed to work;
- Ensure you are paying them legal minimum wage and are following average market rates and not excessively remunerating them. If HMRC believes they have been overpaid, you may have to repay the excess in taxes, so work according to the principle of ‘equal pay for equal value’;
- Ensure there is a direct link between the PAYE records, the business bank account and their bank account, so that all payments to them can be traced and understood in the event of a query;
- Ensure they are an appropriate age to be doing the work; it is illegal to employ anyone under the age of 13.
There are still a few weeks to go before schools and colleges start up again in the autumn so it’s well worth considering whether your children could undertake a holiday project for your business.
Provided you follow these basic ground rules and there is no reason why you cannot offer some work to your children over the holidays, get them earning some extra money while keeping them off their devices and doing something useful.