The school holidays are in full swing and if you’ve got your own business, you are in a fantastic position to offer your children a summer job.
Given the younger generation’s confidence with social media and digital technology in general, this could be a very attractive proposition for a lot of SMEs and means you can put those skills to good use.
Provided they are the right age and you follow the correct procedures, there’s nothing wrong with employing your own children. With summer jobs harder for teens to come by, it’s an excellent way for them to develop some professional skills and work experience for the future, whilst earning their holiday pocket money.
As with everything in business, there is red tape to consider and some pitfalls to be aware of. This is because HMRC can regard employing children as a way to extract profits from a business to reduce tax liabilities. As a general rule of thumb, all payments need to be recorded and can only be justified if the work is ‘wholly and exclusively conducted for the benefit of the business’.
Learning from past mistakes
A recent case involving a father and son (Nicholson vs HMRC) illustrates how problems can arise unexpectedly. Here the father, a sole trader, claimed on his tax return that he had been paying his university student son regular wages of £150 a week – which meant his personal tax liability was reduced. HMRC queried it and disallowed the claim, because they found no evidence 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 and helping with food and drink expenditure. However, because there were no records to prove this and no entries showing on bank statements, the claim was disallowed. Nicholson tried to appeal, but the right to appeal was rejected and he faced paying the tax underpaid.
Provided you follow the basic ground rules however, there is no reason why you cannot offer some work to your children. Here is everything you need to know if you want to put the remaining weeks of the summer break to good use.
How many hours can children work?
Children must be an appropriate age to be doing any paid work, it is illegal to employ anyone under the age of 13.
During the school holidays, 13 to 14-year-olds are only allowed to work a maximum of 25 hours a week. This includes a maximum of 5 hours on weekdays and Saturdays, plus up to 2 hours on a Sunday. 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 record keeping is necessary?
Create a detailed job description outlining exactly what they are expected to be doing and the timeframes they are employed for.
Ensure you are paying the legal minimum wage and are following average market rates and not excessively remunerating them. Work according to the principle of ‘equal pay for equal value’. School aged children are not entitled to the minimum wage and children under 16 don’t pay national insurance; tax will only be payable if their total income is over their personal allowance of £11,850 for the 2018/19 tax year – probably unlikely! Young workers aged 16 to 17 are entitled to be paid at least £4.20 per hour.
Ensure you are keeping full and proper records of all payments. There needs to be a direct link between the PAYE records, the business bank account and their bank account, so that payments to them can be traced and understood in the event of a query.