A recent case in the first-tier tribunal has highlighted what can become a problem area for business owners. Hiring staff you know you can trust is hard to find so many business owners look closer to home and look at hiring family members who can contribute their skills. In this article we discuss some examples of where companies have gotten it wrong and we’ll tell you what you can do to prevent issues arising when employing family members.
Nicholson Case
Alan Nicholson, a central heating salesman, hired his son to help build up an internet business. While working for the company the son moved away to university, still continuing to work for his father by promoting the business. The issue came when the £7,400, claimed as wages, was incurred wholly and exclusively for the purpose of the father’s trade. It was claimed that this figure was ‘based on 15 hours per week at £10 per hour’ and paid through the ‘provision of goods’ and cash totalling £1,850.
There was no argument that the son had been working for his father, the issue lay in how the ‘wages’ had been paid.
Methodology
HMRC were unable to apportion and reconcile any entries in the father’s bank accounts which could provide evidence as payment for services and therefore it was unaccepted that the ‘wages’ were incurred as a business expense. Instead payments to the son were made in cash and in kind, via grocery shopping, insurance and other means. This blurring of boundaries meant that Mr Nicholson’s claim failed whereas if he had followed a more regimented procedure there would have been no reason for HMRC to question the legitimacy of the payments to the son.
What Should you do?
If you employ a family member or are thinking about doing so in the future, then here’s a few tips you should stick to:
- Formality is the best approach
- Don’t make cash in hand payment. Always make sure there is evidence of payments made
- Use Payslips
- Record work done by using a work diary or time-sheet
If you would like any further information on this then please get in touch by email at partners@ergrove.co.uk or phone 0121 559 1071.
