If you own a UK limited company you may be thinking about involving your children in it for a variety of reasons — there are legitimate, tax-efficient ways to do that. But it’s very important to follow the law (or you risk challenge by HMRC). Below is a breakdown of commonly used methods — what works, what you need to watch out for, and when it might not be worth it.
What can work — ways to use your children in a UK Ltd company tax-efficiently
- Employ them and pay a salary to use their personal allowance / lower tax band to reduce overall family tax
- Wages paid to your child for genuine work are deductible business expenses. That reduces your profits, and so reduces your company’s Corporation Tax.
- If the salary remains within their personal allowance (currently £12,570 per tax year for 2025/26), they pay no income tax — so you shift income from you (higher tax) to them (zero tax).
- If their earnings stay below the National Insurance thresholds (or for younger children under certain ages, no NI applies), you can also avoid or minimise NI.
- Having your children on payroll means you’re using their tax-free allowance, which effectively allows the family to keep more of the income overall.
- This can be particularly effective if you, as director, are in a higher tax bracket — shifting some income to (say) a child with no other earnings can reduce overall family tax.
- Qualifying the pay as “wholly and exclusively” for business is a legitimate deduction
- As long as the work is real, necessary, and properly documented (timesheets, contracts, genuine tasks), the salary should be an allowable expense for Corporation Tax.
- Even light duties like admin, social-media, filing, office support, etc., can be acceptable — so long as they reflect actual work
What to watch out for / conditions that must be met
- The work must be genuine, age-appropriate, and necessary — it cannot be a sham arrangement just for tax-saving
- For under-16s (or schoolchildren), there are legal restrictions on hours, times of day, work type, and often local-authority permits are required.
- Their pay must be commercially reasonable — not a disguised wealth-shift. HMRC may disallow payments deemed excessive relative to the duties performed.
- Proper payroll setup is required (PAYE, NI if applicable), even for family members.
- Keep full documentation: timesheets, employment agreement, evidence of work done — this helps protect against HMRC challenge.
- The salary must be paid to them.
When it may not be a good idea (or is risky)
- If the “job” is minimal or fictitious (e.g. just moving money around) and wouldn’t be justified if done by an outsider — that’s a red flag.
- If pay is too high for the duties, or paperwork is poor — risk of compliance problems / HMRC challenge.
- Under-age children: legal restrictions on hours, work type, need for permit, and potential additional regulation (health & safety, child-employment laws).
