Family Companies: How to Involve a Spouse or Child Tax-Efficiently
- JSC Accounting Team
- Oct 7
- 2 min read
Running a business often becomes a family affair and involving a spouse or adult child can make both financial and practical sense. But there are right and wrong ways to do it, especially if you want to stay on HMRC’s good side.
Why involve family
There are two main reasons:
Income sharing. Splitting income between family members can reduce overall tax if they’re in lower tax bands.
Succession planning. Bringing family in early helps with long-term continuity if you want to hand over the business later.
Paying a spouse for genuine work
If your partner helps with admin, bookkeeping, marketing, or customer service, you can pay them a reasonable salary just like any other employee. It must reflect the actual work done and be paid through PAYE with payslips and records.
Salaries that are excessive or undocumented risk being challenged by HMRC as “artificial arrangements”.
Giving shares instead of salary
Alternatively, you can transfer shares to a spouse or adult child. That allows them to receive dividends from the company. Because dividend tax rates are lower than income tax, this can be an efficient way to share profits within the family.
However, you must be careful of the “settlements” rules. HMRC can tax the income back on you if the arrangement is mainly designed to avoid tax without real ownership or risk. This rule doesn’t normally apply to gifts between spouses, but it can apply to gifts to children under 18.
Use of allowances
Everyone has their own:
Personal allowance (£12,570)
Dividend allowance (£500)
Personal savings allowance (up to £1,000 for basic-rate taxpayers)
By spreading income, you can make full use of each family member’s allowances and keep more of your profits.
Involving adult children
You can employ your adult children if they genuinely work for the business (perhaps on marketing, IT, or social media). They should receive fair pay for real work, just like any other employee.
This helps them gain experience, builds family involvement, and can reduce overall tax if structured properly.
The simple takeaway
Family involvement can be rewarding both personally and financially. The key is to do it properly, with real roles, fair pay, and proper paperwork. Structured the right way, it can reduce tax, support succession, and strengthen your business.
Need help making sense of your taxes? JSC Accounting works with small businesses across the UK to keep things simple and compliant. Get in touch for a friendly chat about how we can help.
