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I get asked this question A LOT! “Can I put my wife / husband / kids on payroll so I can save some tax .. my mate says I can”. 

Doing something with the sole aim of saving tax is never a good plan – it generally means that the logic behind it will be completely flawed and will cost you more in the long run.  In this instance, if you put someone on payroll then they need to be doing work for the business, it really is as simple as that.

For a lot of small businesses if one person runs the business and their partner doesn’t work elsewhere the fact is that often, they are working with the business – they do the admin, the finances – so yes! They should be on payroll and you should be paying them.  But if they have other employment or their own business then it’s highly unlikely that they will be doing any work within your business and it’s just not going to be tax efficient either.

Putting your kids on payroll – again, they need to actually work within your business.  If they are under 16 then you need to ensure that you have the correct policies and procedures in place and you need to ensure that you follow the rules about employing children often permits are required and there are strict guidelines about the hours that can be worked and the work that they can do too. Once they are over 16 then the rules are easy (which is why so many big employers these days won’t employ anyone before they are 16!) but you still need to be on the right side of the law. But... if they actually work within your business (and they want to) then go for it!

But putting people on payroll just to reduce your tax ... nope, just not going to work!