Can Your Limited Company Pay Your Spouse or Children?
Many small limited companies are family businesses, even if only one person originally set the company up.
Your spouse, partner or children may genuinely help with administration, social media, bookkeeping, answering calls, packing orders or other work.
If they are doing real work for the business, the company can potentially pay them. But the amount paid must be commercially reasonable and the correct rules need to be followed.
Paying your spouse or partner
If your spouse or partner works for the company, they can be paid a salary in the same way as any other employee.
The important point is that the salary must reflect the work they actually do.
For example, if your spouse helps with administration for five hours each week, paying them £30,000 a year would be difficult to justify. Paying a commercial hourly rate for the work carried out is much easier to support.
The salary is normally an allowable company expense, reducing taxable profits, provided it is incurred wholly and exclusively for the purposes of the business.
Keep evidence such as:
their role and responsibilities;
hours worked;
employment contract where appropriate;
payslips and payroll records;
and evidence that the salary was actually paid.
What about dividends?
Salary and dividends are completely different.
A family member can only receive dividends if they own shares in the company and those shares carry the right to receive the dividend.
Unlike salary, they do not need to work in the business to receive a dividend.
However, the company must have sufficient distributable profits and dividends must follow the rights attached to the relevant shares.
Transferring shares to a spouse or civil partner is generally possible without an immediate Capital Gains Tax charge under the normal spouse transfer rules.
Transferring shares to children or other family members can be more complicated. The transfer may be treated as taking place at market value for Capital Gains Tax purposes, although relief may sometimes be available for shares in qualifying trading companies.
This is something to plan properly before transferring shares.
Can you employ your children?
Yes, potentially.
Children can genuinely work for a parent's limited company and receive a salary, but there are additional rules depending on their age.
The key principle is the same:
They must actually do the work and the salary must be reasonable for that work.
Suitable work could include things such as:
basic office administration;
filing and scanning;
helping with social media;
packing orders;
updating spreadsheets;
simple website tasks;
or other genuine duties appropriate to their age and ability.
You should not simply put a child on the payroll to use their Personal Allowance without them doing any genuine work.
Children below school-leaving age
There are strict rules governing when and how younger children can work.
Generally, children must be at least 14 to work, although local rules can sometimes allow certain work from age 13.
Their work must be light and must not interfere with their education, health or safety.
Restrictions apply to:
the number of hours they can work;
working during school hours;
the types of work they can perform;
and, in some areas, whether a local authority work permit is required.
So before employing a school-age child, check the rules that apply in your local authority area.
How much can you pay them?
There is no special tax rule allowing parents to choose any salary they like.
The salary must be commercially justifiable.
Ask yourself:
Would I pay an unrelated person this amount to do the same job?
If the answer is no, the salary may be difficult to defend as a genuine business expense.
For younger children below compulsory school age, the National Minimum Wage does not generally apply.
Once they are old enough for the minimum wage rules to apply, the company must normally pay at least the relevant rate.
The family-worker exemption does not generally help where the employer is a limited company.
For 2026/27, the rates are:
age 21 and over: £12.71 per hour
age 18–20: £10.85 per hour
age 16–17: £8.00 per hour
qualifying apprentices: £8.00 per hour
Can the salary be tax free?
Potentially.
If the family member has no other taxable income, salary can fall within their Personal Allowance.
For 2026/27, the standard Personal Allowance is £12,570.
However, the salary must still be supported by the amount of work actually carried out.
You cannot justify a £12,570 salary simply because £12,570 happens to be tax free.
National Insurance can also be favourable for younger workers
There are additional National Insurance advantages when employing younger people.
Children under 16 do not generally pay National Insurance.
For employees aged 16 or over, employee National Insurance can arise once earnings exceed the relevant threshold.
Employer National Insurance is also treated more favourably for employees under 21, with the special under-21 threshold extending up to the Upper Secondary Threshold.
This can make genuine employment of older children particularly efficient where they are already helping in the family business.
A simple example
Imagine your 18-year-old daughter is at college and works for the family company during weekends and school holidays.
She helps with:
creating social media posts;
filing documents;
answering customer emails;
and updating the company's database.
The business might otherwise need to employ somebody else to do this work.
If she works 10 hours per week and is paid the proper commercial hourly rate through payroll, the salary can potentially be a genuine business expense.
Instead of the parent taking additional dividends, paying tax personally and then giving their daughter spending money, the company is paying her directly for real work she has performed.
That can be much more tax efficient.
But the tax saving is a consequence of genuine employment — it should not be the reason for inventing a job that does not exist.
Keep the paperwork
Family arrangements often receive more scrutiny because the people involved are connected.
It is therefore particularly important to keep proper records.
Treat your family member in much the same way as you would any other employee:
agree what they will do;
pay an appropriate rate;
record their hours where relevant;
run the salary through payroll;
pay the money into their own bank account;
and keep evidence of the work carried out.
Final thoughts
Paying family members can be a perfectly legitimate way to run a family business and can sometimes produce useful tax savings.
But there is an important distinction between:
paying a family member because they genuinely work for the company
and
putting them on the payroll simply to reduce tax.
The first can be good business planning.
The second can create problems.
The same applies to shares and dividends. Family members can receive dividends where they genuinely own shares carrying the appropriate rights, but share transfers should be considered carefully before making changes.
At Busy Bee, we help limited company owners stay compliant, tax efficient and in control of their business finances.
Disclaimer: The content on this page is for general information only and should not be treated as tax, legal or financial advice. Tax planning should always be reviewed against your individual circumstances before action is taken.
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