Can I employ family members through my limited company?

At Towerstone Accountants we provide specialist limited company accountancy services for directors and owner managed businesses across the UK. We wrote this guide for people running a company who want clear answers on tax, payroll, Companies House filing duties, and day to day compliance without jargon. Our aim is to help you understand your responsibilities, reduce the risk of penalties, and know when to get professional support.

This is a question I am asked constantly by directors and small business owners, usually because they want to do things properly while also running their company in a sensible and tax efficient way. There is often a concern that employing a spouse, child, or another relative might look suspicious or fall into a grey area, but I want to be clear from the outset, yes you can employ family members through your limited company, and when it is done correctly it is entirely legitimate under UK tax law.

The key point, and I will come back to this throughout the article, is that the employment must be real, the work must genuinely benefit the business, and the pay must be reasonable for the role being performed. HMRC does not ban family employment, but it does scrutinise arrangements that appear artificial or excessive.

In this article I will explain how employing family members works in practice, what HMRC expects to see, which relatives can be employed, how pay and tax should be handled, and where I see businesses get it wrong. I am writing this from my experience as a chartered accountant who advises limited companies every day, and everything here reflects current UK guidance and real world situations rather than theory.

What it means to employ someone through a limited company

Before looking at family members specifically, it is important to understand what employment through a limited company actually involves, because many problems arise when this is misunderstood. A limited company is a separate legal entity, even if you are the sole director and shareholder, which means the company must act as a proper employer.

When your company employs someone, it must:

• Pay wages through payroll
• Operate PAYE correctly
• Deduct Income Tax where applicable
• Deduct employee National Insurance where required
• Pay employer National Insurance where due
• Comply with UK employment law
• Keep proper payroll and employment records

These responsibilities apply regardless of whether the employee is related to you or not. The family relationship does not remove or reduce these obligations, and HMRC will always look at whether the company is behaving like a genuine employer.

Which family members can a limited company employ

UK tax law does not restrict which family members a limited company can employ. In principle, your company can employ:

• A spouse or civil partner
• A cohabiting partner
• Adult children
• Parents
• Siblings
• Other close relatives

The relationship itself is not the deciding factor. What HMRC cares about is whether the employment is genuine, commercially justifiable, and paid at a rate that reflects the work done. If the role exists because the business needs it, and the family member is capable of doing the job, the starting point is usually acceptable.

Employing your spouse or partner

This is by far the most common scenario I see in practice. Many directors rely heavily on their spouse or partner for day to day support, often informally at first, and then later realise it makes sense to formalise the arrangement.

Common legitimate roles for a spouse or partner include:

• Administration and diary management
• Bookkeeping and invoicing
• Managing emails and customer enquiries
• Social media posting and basic marketing
• Supplier liaison and ordering
• Answering phones and managing appointments

If your spouse is genuinely carrying out these tasks, and the business would otherwise need to pay someone else to do them, employing them is usually reasonable. What matters is that the role exists because the business needs it, not because you want to move profits out of the company.

Pay must be realistic and defensible. I always advise clients to ask what they would pay an unrelated person to do the same job. Paying a spouse an inflated salary for basic admin work is one of the quickest ways to attract unwanted attention.

Employing your children

You can employ your children through your limited company, but age is a critical factor, and this is an area where I always encourage caution.

Children under 16
In practice, employing children under 16 through a limited company is rarely appropriate. While employment law allows limited forms of work in certain circumstances, HMRC is highly sceptical of arrangements involving very young children, and I generally advise clients to avoid this entirely.

Children aged 16 to 17
Once a child reaches 16, employment becomes more realistic, but restrictions still apply. Working hours must be reasonable, the work must be appropriate for their age, and pay must meet age related National Minimum Wage rules.

Typical acceptable roles include:

• Basic administrative tasks
• Filing and data entry
• Social media assistance
• Website updates
• Packing orders in retail or ecommerce businesses

Adult children
Employing adult children is much more straightforward. They can take on meaningful roles within the business, including marketing, sales support, operations, or technical work, provided they have the skills required and the pay reflects market value.

Paying family members a reasonable salary

This is where most problems arise. HMRC does not set a fixed limit on what you can pay a family member, but it does expect pay to be commercially justifiable. In simple terms, you should not pay more than you would reasonably pay someone else for the same work.

When deciding on pay, I recommend considering:

• The duties and responsibility of the role
• The number of hours worked
• The skills and experience required
• Local or industry market rates

Keeping a short note explaining how you arrived at the salary can be very helpful. If HMRC ever asks questions, being able to explain your reasoning calmly and logically often prevents matters from escalating.

Running payroll and PAYE properly

Family members must be paid through payroll in exactly the same way as any other employee. There is no special exemption for family arrangements. This means registering as an employer if needed, running payroll on a regular basis, submitting Real Time Information, issuing payslips, and paying PAYE and National Insurance on time.

Paying family members informally, or outside payroll, is one of the most common and most serious mistakes I see, and it is very difficult to defend if challenged.

Employer National Insurance and costs

Employer National Insurance is often overlooked when employing family members. If an employee earns above the employer NI threshold, the company may need to pay employer contributions. In some cases, the Employment Allowance can reduce or remove this cost, but eligibility depends on your wider circumstances.

This is an area where individual advice matters, because the right structure for one company may not be right for another.

Employment contracts and documentation

When employing family members, having clear paperwork in place is particularly important. It demonstrates that the arrangement is professional and genuine rather than informal or artificial.

At a minimum, I recommend having:

• A written employment contract
• A clear job description
• Agreed hours of work
• An agreed rate of pay

These documents should reflect what actually happens in the business. Overly complex contracts are unnecessary, but vague or unrealistic paperwork can cause problems if questions arise.

Evidence of work and hours

HMRC rarely asks for evidence unless something looks wrong, but you should be able to demonstrate that work is genuinely being done if required. This does not need to be onerous.

Useful evidence can include:

• Simple timesheets or hour logs
• Emails and correspondence
• Access to business systems
• Work outputs such as invoices, reports, posts, or spreadsheets

Paying someone for full time hours when the business activity clearly does not support that level of work is a red flag, particularly where the employee is closely related to the director.

National Minimum Wage rules

Family members are not exempt from National Minimum Wage rules. If they are classed as workers or employees, they must be paid at least the appropriate rate for their age. This is especially important for younger family members and part time roles.

Failing to comply can lead to backdated pay, penalties, and reputational damage, all of which are easily avoided with basic checks.

Using family employment as part of tax planning

Employing family members can reduce Corporation Tax because salaries are an allowable business expense, but this should be a consequence of genuine employment rather than the sole objective. HMRC looks closely at arrangements that exist only to reduce tax, particularly where profits drop sharply without a clear commercial reason.

Used properly, family employment can support the business and spread income efficiently. Used aggressively, it can unravel quickly.

Common mistakes I see in practice

The most frequent problems I encounter include paying inflated salaries, failing to run payroll properly, ignoring minimum wage rules, and having no evidence of work done. Almost all of these issues arise from misunderstanding rather than deliberate wrongdoing, but they can still be costly.

Final thoughts

Employing family members through your limited company is perfectly possible under UK rules, but it must be done with care, realism, and proper structure. If the work is genuine, the pay is reasonable, and the paperwork is in order, there is usually nothing to fear. If the arrangement exists only on paper, it is only a matter of time before problems arise.

When in doubt, take advice early, because getting it right from the start is always easier than fixing it later.

You may also find our guidance on What are allowable and disallowable expenses for limited companies and How much does an accountant cost for a limited company helpful when exploring related limited company questions. For a broader overview of running and managing a company, you can visit our limited company hub.