How to Employ a Family member to reduce tax?
Employing a Family member in a company or business can lead to reduction in taxable profits and it can reduce the overall tax payable by the business. However, strict Revenue rules must be followed to ensure the wages expense qualifies as a tax deduction.
Who can be employed?
In the case of many small and medium-sized businesses it is common practice to engage children, spouses or other close relatives as employees in the business.
Spouses, children or other family members may assist in the running of a family business and receive payment for the work undertaken by them. Such individuals are to be treated and taxed as any other employee.
What duties qualify for the relief?
For example, it is common practice for a spouse to be paid a sum for their involvement in the day–to-day running of the business. Such activities may include administrative duties relating to:
- scheduling of appointments,
- job estimates,
- telephone answering,
- bookkeeping,
- banking,
- cleaning, etc.
What are the Revenue conditions?
Wages paid for work done by family members is an expense of the business and its tax deductibility must be considered like any other expense. Under Irish tax legislation, a deduction is only available in respect of wages paid which are ‘wholly and exclusively’ for the purpose of the trade.
2) the remuneration is justifiable in relation to the duties performed and work done,
5) the payment must be actually received by the family member.
What rates can I pay to a Family member?
Businesses who engage family members must ensure that the remuneration is justifiable in relation to the duties performed and that the rate payable is comparable to a rate that would be paid to an independent employee with the same qualifications and experience performing the same duties.
Remuneration paid to family members whose remuneration is not commercial or commensurate with the actual duties performed may be apportioned.
Example:
Alan runs a small dental practice. His 14 year old nephew, Ben helps him out for ten hours a week undertaking administrative duties in the practice and receives €50 an hour. This equates to €25,000 a year, allowing for school holidays and some overtime. Bearing in mind the applicable minimum wage for workers under 18 and the fact that Ben has no qualifications, it is considered that the hourly rate of pay to Ben exceeds the market level rates for such an employment. A deduction will therefore only be available in respect of an amount which is considered fair and reasonable having regard to the factors above.
How to pay a Family member?
In order for expenditure to qualify for a tax deduction, there must be actual expenditure incurred by the business. It is essential therefore that wages must actually be paid over to the family member in order to be tax deductible.
Where, in reality, the family member is merely a conduit and the wages are in fact being retained by the business owner, then the amount will be treated as an appropriation of profit and a deduction will not be allowed.
How to claim the relief?
You can claim the relief for wages paid to a family member in your annual Income tax return Form 11 or Corporation Tax return CT1.
Need help with claiming the relief?
If you require any help with your Annual Tax return, please leave your email address, we will be happy to assist.
CT1 Annual Return
from €85
Included is:
- Submission of CT1 to Revenue
- Tax payment processing in ROS
- Monitoring in CORE till Notice of assessment issued by Revenue
You may also find useful:
- Corporation Tax Return - from €120
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