Despite 87.6% of businesses in the UK being family-owned, even long-term successful family businesses have problems. Deciding whether it is smart to keep it in the family may not be a crystal clear choice.
In most families, disagreements naturally arise. At home, it may not be a major issue, but in a business environment, it’s a whole different story. That’s especially true if you are already running a business and thinking of bringing a family member on board, potentially introducing new disruption.
It’s not all doom and gloom, though – there are major upsides, too.
When working with family, you already know everyone’s personality, strengths and their work ethic. Communications are sometimes easier, too, because you’ll have similar experiences and reference points.
Compared to a non-family firm, the level of commitment is usually higher, too. The family name and livelihood is at stake, after all, so there can be a greater sense of accountability and personal investment.
With this long-term commitment embedded by default, your team will often have a greater understanding of the business, industry and audience, which can make it easier to generate leads and make sales. Put simply, people like to do business with family firms.
In many family businesses, the company is kept in the family for generation to generation, resulting in longevity in leadership and continuity of service.
Those leading family businesses often stay in the business for many years, until major life events such as retirement, illness or death trigger change. Even after they retire, their knowledge isn’t lost, and they can be called upon for advice, or to support marketing efforts.
On the downside (more on those later) this can be a key area of tension – when is Mum going to retire so I can finally have my turn running the firm? Things can also get tense if a long-serving family member ceases to be up to the job and needs to be given a nudge to make way.
When working with family, you will rarely hear, “Sorry, this is not a part of my job description”.
In most cases, family members will juggle their workload, even taking on tasks outside of work hours and beyond their job role to ensure the company succeeds.
Again, it’s about commitment, and loyalty to your loved ones.
Typically, people who’ve grown up in and around a business will also have an understanding of all sorts of roles, from shop floor to management. They might even have had some of them as summer jobs when they were younger.
One very good reason to employ family members is the range of tax benefits it opens up.
Employing spouses and partners
Employing your partner is one way to maximise the personal tax allowance, if they are not taking full advantage of it already.
They can earn up to £12,500 per annum without having to pay tax on their earnings, reducing the overall tax bill for your household. The salary you pay them can also be deducted from your business’s profits for tax purposes.
You just have to make sure you’re paying them a reasonable market rate for a genuine job – HMRC frowns on people being paid £30 per hour to manage your social media (browse Instagram), for example.
Another way to benefit from working with your spouse is to appoint them as a director or shareholder.
Shareholders of a business have access to certain benefits, which employees and directors are not entitled to, which includes the right to receive dividends.
Shareholders can receive up to £2,000 tax-free dividends every year. Alongside this, dividends are also taxed at a lower rate compared to income tax.
When it comes to employing your children, you need to make sure that you are following the UK employment law, which states that if your child is over the age of 16 then you will have to pay them the national minimum wage unless they are an apprentice.
However, if your child is under 16, you should still pay them a reasonable amount for the work they are doing.
Children under the age of 16 are not required to pay national insurance and you will not need to put them on the payroll unless their income is more than £12,500 per year.
Although there is no specific tax benefit from employing your child, you are allowed to deduct their wages from profits, as above, and, if your child is over 16 and earning over the tariff, you can claim back national insurance payments through the employment allowance.
Alternatively, if your child, for example, is a whiz with website design, there is no reason why they cannot set up their own web design company, and you would be able to pay them for their services, which could be deducted from your profits.
We’ve mostly focused on the positives so far – what about the negatives?
From personal drama to petty arguments, as much as you love them, having family members around can distract you from reaching your business goals, which can impact your productivity.
We’ve talked about loyalty and commitment but sibling rivalries and intergenerational tensions are generally only amplified by working together.
With everyone already working from home, when working with family it can be really tough to keep work and family life separate.
If you are having disagreements with your partner at home, it could affect your business if you are working together – and vice versa.
In simple terms, some people need a clear separation from work-life and family life.
Although you may want to hire a family member, purely because they have the right skills and experience, other employees may feel resentment towards them, especially when it comes to promotions and pay rises.
As a rule of thumb, treat family members professionally. Get everything in writing, with proper contracts, and ensure they’re subject to the same rules, processes and systems as everyone else.
Require more information?
There’s a lot to think about when deciding if you want to work with family members. Get in touch with our family business accountants at Rogers Spencer for impartial advice. Contact us on 0115 960 8412 or complete our contact form.