Should You Employ Your Parent or Sibling to Help Reduce Tax?

It’s a question that pops up more often than you might think:

"Could I put Mum, Dad, or my brother/sister on the payroll to help out — and lower my tax bill?"

On paper, it sounds like a win-win: you get help in your business, they get extra income, and HMRC gets… well, exactly what they’re entitled to, but not a penny more.

But before you go printing out a family contract over Sunday lunch, there are some important rules, and a few potential pitfalls, you need to know.

1. HMRC Doesn’t Care That You’re Related — But They Do Care That It’s Genuine

The good news is: there’s no rule saying you can’t employ a family member. In fact, plenty of small businesses do.

The catch? The role must be real, the work must be actually done, and the pay must be reasonable for the job.

If you pay your sister £35,000 a year to “occasionally answer emails” expect awkward questions from HMRC.

2. They Must Be Paid Like Any Other Employee

This means:

• Written terms (a contract is best)

• Payroll registration (yes, even for Mum)

• Payslips and PAYE deductions if they earn over the tax/National Insurance thresholds

• Holiday pay and other statutory rights

This is a business arrangement, not just slipping cash in an envelope at Christmas.

3. The Tax Saving Can Be Real — But It’s Not Magic

If you currently take all the profits yourself, employing a family member can:

• Move some of the profit into their hands (possibly taxed at a lower rate)

• Reduce your own taxable income

• Potentially lower your National Insurance bill

For example, if your parent has no other income, you could pay them up to their personal allowance (£12,570 for 2025/26) with no income tax for them, and get a corporation tax deduction for your business.

But — and this is a big but — you need the cashflow to pay them, and the work must justify the pay.

4. Watch Out for Benefits and State Pension Implications

If your parent is on a state pension, extra income might affect certain benefits (like Pension Credit).
If they’re younger and not working elsewhere, you may want to make sure they earn enough to get National Insurance credits towards their own state pension.

5. Family Dynamics Can Get… Interesting

Employing family can work brilliantly — or it can cause tension you’ll be talking about for decades.
Ask yourself:

• Will they respect you as “the boss” in work hours?

• Will you be comfortable managing performance if things slip?

• Can you separate business disagreements from Sunday roast conversations?

6. It’s Not Just About Tax

Done right, employing a parent or sibling can be a smart way to grow your business with people you trust.
Done wrong, it’s a quick way to create HMRC headaches and awkward family gatherings.

The bottom line?
✅ Hire them if they can genuinely contribute
✅ Pay them a fair market rate for the work they do
✅ Keep proper payroll and employment records
✅ Get advice before you start

Because while saving tax is nice — keeping both HMRC and your family happy is even better.

Need advice on employing family in your business?

We help creative business owners set up tax-efficient arrangements that stay firmly within the rules — and won’t cause festive fallouts. Why not get in touch for a chat?