Yes, you can employ your children in your business, and if they do genuine work for a fair wage, their pay is a deductible business cost. Because every child has their own personal allowance of £12,570, modest wages can often be paid with no income tax at all.
The catch is that the work has to be real, the pay has to match it, and you have to follow the rules on child employment. Get those wrong and HMRC can disallow the cost, and you could also fall foul of employment law.
How the tax works
Wages paid to your child reduce the profits of your business. For a company, that saves corporation tax at 19 percent to 25 percent depending on profit levels. For a sole trader or partner, it saves income tax at your highest rate, plus Class 4 National Insurance.
On the child's side, pay within their £12,570 personal allowance is tax free, provided they have no other income using up the allowance. There is no employee or employer Class 1 National Insurance on earnings of children under 16. From 16 to 20, employer National Insurance is 0 percent on earnings up to £50,270 for 2026/27, although employee National Insurance applies above £12,570.
The child employment rules
The law limits when and how much children can work. In outline:
- Children under 13 generally cannot be employed. The exceptions are areas such as television, theatre and modelling, which need a licence.
- From 13 until they reach school leaving age, children cannot work during school hours, before 7am or after 7pm.
- On a school day they can work a maximum of 2 hours, and no more than 12 hours in a school week.
- In school holidays the limit is 25 hours a week for 13 and 14 year olds, and 35 hours for 15 and 16 year olds.
- Most local councils require a child employment permit, and local byelaws vary, so check with your council.
What counts as fair pay
For the wages to be deductible, they must be paid wholly and exclusively for the business. In practice, that means the pay must be commensurate with the work done. Paying a 14 year old £12,000 for occasional filing will not survive a challenge.
Children below school leaving age are not entitled to the National Minimum Wage. Once they are above school leaving age, the rates from 1 April 2026 are £8.00 an hour for under 18s, £10.85 for 18 to 20 year olds and £12.71 for those aged 21 and over. A sensible approach is to pay what you would pay an unrelated person of the same age for the same work.
Suitable work might include filing, scanning, social media, stock counting, cleaning, packing orders or helping at events.
A worked example
Sophie is 15. She helps in her parents' company, scanning paperwork and packing online orders. She works 4 hours on Saturdays during term (39 weeks) and 15 hours a week for 8 weeks of the holidays, which is 276 hours a year. The company pays her £10 an hour, the rate it would pay any teenager doing the same work.
- Annual pay: £2,760
- Income tax for Sophie: nil, as it is within her personal allowance
- National Insurance: nil, as she is under 16
- Corporation tax saved by the company at 19 percent: £524
If the company's profits fall in the marginal relief band, the saving is higher, at an effective 26.5 percent.
Paperwork and payroll
Treat your child like any other employee. Keep a simple record of hours and tasks, pay them by bank transfer into an account in their name, and keep payslips. If you already run a payroll, add them to it. If you do not, you must register as an employer before the first payday if anyone is paid at or above the lower earnings limit of £6,708 for 2026/27, receives benefits, or has another job. Even if registration is not needed, keep clear records.
Check your employer's liability insurance covers young workers, and carry out a risk assessment for the tasks they do.
A word of warning on shares
Some parents consider giving shares to children instead and paying dividends. Where a parent gives shares to their own minor child, dividends of more than £100 a year are taxed on the parent under the settlement rules. Paying a wage for genuine work is usually the cleaner route.
What to do
- List the tasks your child could genuinely do and how many hours a week that involves.
- Set an hourly rate you would pay an unrelated person for the same work.
- Check the hours against the child employment limits and apply for a permit from your council if required.
- Keep timesheets, pay into their own bank account and run it through payroll where needed.
If you would like us to look at this for your business, book a free call.
