Can you employ family members to save tax?

Yes - if done correctly and within HMRC rules. Employing a spouse can be particularly tax-efficient, but the salary must be “wholly and exclusively” for business purposes and structured correctly to avoid falling foul of HMRC’s settlement rules.

How It Can Work for You:

Reduce Corporation Tax – A fair salary is a deductible business expense, lowering taxable profits and saving 19–25% in Corporation Tax.
Use Their Tax-Free Allowance – If they have no other income, your spouse can earn up to their personal allowance via the business tax-free. Employer’s NI may apply, but this could be offset by the Employment Allowance (if eligible).
Build Up National Insurance Contributions (NI) – A salary above the Lower Earnings Limit but below the Primary Threshold allows them to build up State Pension entitlement without paying employee NI.
Pension Contributions – Your company can make tax-efficient pension contributions on their behalf, reducing taxable profits while boosting their retirement savings.

Avoiding HMRC settlement rules

HMRC’s settlement rules prevent business owners from diverting income to a lower-taxed spouse without a genuine commercial arrangement. To stay compliant:

The role must be real – They must perform actual work for the business.
The salary must be proportionate – Pay should reflect market rates for the tasks performed.
Payments must be made – The salary must be physically paid through payroll (not just an accounting entry).
No artificial arrangements – Simply paying a spouse to reduce tax, without them contributing to the business, is likely to be challenged.

What about employing children?

Typically, they must be 16 or older to be employed in a meaningful role due to employment laws. As with a spouse, the work must be genuine, appropriate, and paid at a market rate whilst PAYE and National Minimum Wage rules also apply.

Thinking about this for your business?

If structured correctly, employing family members can be a legitimate way to reduce tax, share household income, and build future entitlements—but it must be done right.

Want to explore whether this could work for you? Get in touch, and we’ll guide you through the process.