Paying your teenager to pack orders: the half-term rules

An online seller who pays their 14-year-old to pack orders over half-term can usually deduct the pay as a business cost. Two things come first. Most London councils want a child employment permit before the work starts, and HMRC wants to see wages for real work, not pocket money with a business label on it.

Half-term, which for many London schools starts on Monday 26 October, and the run-up to Christmas are when plenty of seller households put the children to work at the packing table. Done properly, it is one of the few family arrangements where the council, the law on children's hours and the taxman all point the same way.

Helping counts as working

The starting point surprises parents. Lambeth Council's child work permit form puts it plainly: "If a child helps with any business which is carried out for profit, even if they receive no payment, they are still deemed to be employed." A teenager taping boxes in a spare room in Brixton is employed for these rules, paid or not.

The gov.uk guide to child employment says children can work part-time from 14, and from 13 in some council areas. Lambeth sets 13 as its minimum. Most councils require the employer to apply for a permit, and gov.uk warns that without one "there's a risk that the employer will not be insured against accidents involving the child". Lewisham asks for the application within the first five days of the job.

The hours are fixed too. In the school holidays a 14-year-old can work up to 25 hours a week, with no more than five hours on a weekday or Saturday and two on a Sunday. For 15 and 16-year-olds the limit is 35 hours, with up to eight hours on a weekday or Saturday and two on a Sunday. No child under school leaving age works before 7am or after 7pm, or for more than four hours without a one-hour break.

Wages, not pocket money

Pay to a relative is a business cost if it is for work done and the amount is not set by the relationship. HMRC's guidance on payments to close relatives says that "where there is equal pay for equal value the amount paid is fully allowable", and that paying a relative significantly more than others doing the same work is a warning sign.

The case HMRC still cites is a family farm. In Dollar v Lyon, parents paid their four children, aged 7 to 14, £2 a week each for farm work and claimed it as wages. The tax commissioners found that most of it was pocket money, and the High Court upheld them. The same sum for every child, whatever their age, and an amount that looked like pocket money, were what sank the claim.

So agree an hourly rate that fits the job, keep a timesheet, pay only for hours actually worked, and pay by bank transfer into the child's own account.

Illustration, not a real client: a sole trader in Sutton who sells homeware on Etsy pays her 14-year-old £8 an hour for 20 hours of packing over half-term. That is £160, paid into his own account against a timesheet he signs. £8 an hour is the legal minimum for 16 and 17-year-olds, which makes it hard to call excessive for a 14-year-old. She deducts the £160 from her profit.

Payroll, National Insurance and the child's own tax

School-age children are not entitled to the National Minimum Wage. Under-16s pay no National Insurance either, and gov.uk says "you only need to include them on your payroll if their total income is over their Personal Allowance". That allowance is £12,570 this tax year. A half-term of packing is nowhere near it, so the child pays no tax on it either.

Turning 16 changes things. A 16 or 17-year-old is entitled to at least £8 an hour, and gov.uk says that if you pay any employee over £96 a week you must be registered as an employer and run PAYE. Our guide to registering for PAYE as an employer walks through that step.

If you trade through a company

The company is then the employer, and two more points apply. HMRC says pay to the minor child of a controlling director that cannot be justified on ordinary commercial grounds may also be taxed on the parent under the settlements rules. And the family exemption from employers' liability insurance does not help. The Health and Safety Executive says it does not apply to family businesses incorporated as limited companies, so a company that pays a director's child needs the cover.

Before half-term

Find your council's child employment page and send the form. Agree the rate, write down the hours as they are worked, and pay into the child's own account. If your teenager would rather help for love than money, that is fine too. It just is not a business expense.

About the author

Harvey Dhillon is Founder and CEO of Zmartly, a UK accountancy firm for ecommerce sellers. He grew up in West London and began his career in investment banking finance at Barclays, before going full-time on Zmartly in 2020. He is a Chartered Management Accountant (ACMA, CGMA).

Featured photo by Jernej Breznik on Unsplash.