Tweak Your Biz » Finance » Hire your children!

Hire your children!

by Aileen Hannan on November 4th, 2009
6 Comments



If you read ‘Accounting is easy’ on here then you’ve figured out that the key to keeping your tax down is making sure that as much of the spending you do as possible fits into the business expenses category. If you aren’t getting that, go back and read it again!

I know a man (Jim) with a bus hire company. When he comes home in the evening, his children run out to meet him and spend quality time with Dad helping him clean the busses. And how does Dad reward them? A fiver here, a tenner there, or money into their college fund.  It adds up.

Remember the basic formula:
Sales minus Business Expenses = Profit. Profit minus tax = Jim’s money.
Jim pays the kids.

On his 50,000 profit, between PAYE and PRSI and Income Levy Jim’s tax bill is about 30% of his profit.

Right now the fivers and tenners and college donations are coming out of Jim’s after tax money. But why? If the kids weren’t cleaning the busses he would have to employ or subcontract someone to do it.

Instead, if Jim hires his kids, making their wages a valid business expense, he saves about 30% on what he is paying them, by making sure their money is on the before tax  side of the formula.

Sales minus Business Expenses (including paying the kids) = Profit. Profit minus tax = Jim’s money.
The kids are already paid.

Of course Jim has to register them as employees, and it’s no good if any of them have other jobs as well because they will have used all their tax credit.

So the moral is to beat the tax man, hire your kids, pay them and make them pay for their own college!

Now if you’ll excuse me I have a child to send up a chimney.



Category: Accountancy, Financial Planning

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The Author:

Aileen is passionate about entrepreneurs getting their heads round financial control early on in their business. Like Oprah and Tommy Hilfiger, she believes it is the true key to success. As co-owner of Aisling Software Ltd, she provides SortMyBooks online accounts software and Financial Training for self-employed people. Her background is in programming and systems analysis, and having done the corporate thing in companies like Pepsi, Canada Dry and Coors Beer in New York, and the Department of Revenue and Tax on the island paradise of Guam, and GE Money in Dublin, when she started her own small business in Killarney, the traditional methods of bookkeeping and accounting and the traditionally low expectations for financial knowledge and control for self employed people frankly drove her mad. Together with her sister Anne, they found a better way and produced SortMyBooks Accounting software for small businesses, accompanied by the all-important Financial Control Training. The company headed into the Cloud Computing arena with the launch of SortMyBooks Online Accounting in 2010. This has brought even more flexibility to the busy entrepreneur who wants to watch their business grow from anywhere in the world. Just one year on, the software won the IIA Netvisionary award and was shortlisted for the Eircom Spiders. Aileen is happy to speak at any small business event where the focus is to simplify the concepts of accounting, tax, profit and financial control in general. Give her a call! http://www.sortmybooks.com

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  • http://www.seefincoaching.com/blog Elaine Rogers

    Love this post Aileen – very valid and relevant. But can you put 7 yr olds on the payroll? Are there limits to how many and how much they can earn – or should earn to make it worth their while (I assume a 7 yr old doesn’t quite get tax credits just yet)
    But thanks for sharing – great for older kids to help contribute to their studies.
    Elaine

  • Joanne

    Aileen – I can never understand why a woman hiring a nanny or childminder can’t deduct that against her self employed income..she is hiring the nanny, paying PAYE/PRSI etc and the nanny facilitates her work…seems to be it’s a no brainer!

    Although you could always put the nanny on the payroll and call her your ‘executive assistant’ :-)

  • http://twitter.com/aileen456 aileen456

    I must remember to check my comments.
    elaine, yes, if it is a real job your 7 year old can go on the payroll. it goes back to the family farm or shop or pub.

    joanne, the childcare thing is a problem, as its not considered a business expense. totally unfair. but yes, get her to do some paperwork for you and at least claw something back!

  • http://www.garrendennylane.ie/blog Lorna

    Brilliant post Aideen, what is the youngest age then that you can put your kids on the payroll (family farm) and what is the max you can pay them until they have to pay tax!!

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