Teenage helpers are tax savers

Your teenage children are always asking for extra cash - as paying them out of your taxed income is expensive, is there a way to get your company to pay them instead ?

How it mounts up

Teenage spenders. Children of all ages are expensive. But when they reach their teenage years, the demands on your cash get even harder to resist. You probably give your teenagers pocket money of some description too. If you pay it out of taxed income it has to be grossed up to show what it really costs. For example, if your daughter and son receive £10 and £12.50 per week respectively, it won't cost you £1,170. In fact, the amount you have to earn to pay them this sum is actually £1,983! (if a higher rate taxpayer).

Get them working. Of course you could send them out to after-school and Saturday jobs to help earn their own money. There are some legal rules to comply with, e.g. the child must be 14 or over and not work for more than five or eight hours (depending on age) on a Saturday, but by and large there are plenty of employers looking for younger workers. So why not join that list of employers? You could take your teenage children onto the payroll, get the company to pay their pocket money (and more) as wages and save yourself a tidy sum in tax at the same time. How is it done?

On the payroll

You could employ them in the office on a Saturday morning to carry out filing duties, tidying up, counting stock etc. You could do the same for a couple of hours after school during the week too (as long as they don't work past 7pm). You have plenty of flexibility here. Maybe the fleet of company cars needs a wash?

Paper formality. You should add them to your payroll like any other employee. The good news is that the company can claim a full tax deduction for their wages.

How much to pay? The national minimum wage of £3.30 per hour only applies to 16 and 17 year-olds so you can basically pay what you like. However, the more the company pays them, the more you'll save personally. And remember, it's deductible for the company. They'll need to complete a Form P46 if employed for more than a week.

Will they pay tax? Everyone has a personal allowance, which, for 2006/7 is £5,035 (£5,225 next year). As long as your teenage worker's total income for the year is less than this, he (or she) won't pay a penny in tax - and that would buy him (or her) around 50 pairs of the latest trainers! Plus, neither you nor they will pay any NI (as long as they're under 16).

Really so straightforward?

Whilst you don't have to issue them with contracts, it would be helpful to list their principal job tasks. And do make sure they actually work for the money, otherwise the Taxman might turn nasty.

Tip 1. Workers under 16 won't be issued an NI number. So simply enter their date of birth and gender on the end-of-year returns. Of course the good news is that they won't pay any NI either.

Tip 2. As employees of the company you can go one stage further by giving them benefits-in-kind such as a mobile phone. If the contract's in the name of the company, the benefit will be tax-free.

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