Ten Tax Tips for Parents who Work for Themselves
Posted by: Raphael
in Tax Credits
on Dec 21, 2009 
When you run your own business, bringing a child into the world is a costly matter; it introduces the strain of supporting a household as well as the extra pressure of juggling work and home commitments. The good news is that the government is offering financial support. Take our tax tips for parents to make sure you are getting your state entitlements, from pregnancy right through to employing your children in the business.
01For company directors, make sure you receive the correct Maternity, Paternity or Adoption Pay
If you run a limited company, then you could be paying yourself as a director. Provided you meet the qualifying criteria regarding the length of your employment, then you will be entitled to a payment that your company can recover from the government. Where you are taking most of your profits as a dividend, then you will at least obtain the minimum SMP of £123.06 per week. You can receive the payments for up to 39 weeks.
02For sole traders and partners, check if you can obtain the maternity allowance
If you are not entitled to statutory maternity pay then you could be entitled to the maternity allowance paid by the Department of Work and Pensions. If you were self employed for at least 26 out of the 66 weeks before you your baby is due then you can get the allowance. The benefit is 90% of your average weekly pay or £123.06 per week if higher.
03Receive your one-off Health in Pregnancy Grant
From 6 April 2009, mothers who are 25 weeks into their pregnancy can apply for a £190 grant towards the cost of pregnancy and childbirth. HMRC will make the one-off payment direct to the mother’s bank account which she can spend as she chooses. It is not means tested and will not affect entitlement to other benefits. Claim forms are available from a doctor or midwife.
04Apply for Child Benefit
Register for Child Benefit as soon as your first baby is born. You can receive £20.00 per week for your eldest child and £13.20 per week for each of your other children. The benefit is not means tested. You will receive the benefit until your child reaches 16 (or 20 if in certain kinds of education), however a claim can only be backdated three months.
05Get your Child Trust Fund Voucher
Save tax-free for your children by opening a Child Trust Fund. The accounts are available to all children born after 1st September 2002, and up to £1,200 can be added each year. The government will send you a £250 voucher to open the account and a pay in a further £250 on the child’s seventh birthday. All income and gains are built up tax free until your child’s 18th birthday, when the funds can be withdrawn or rolled over into an ISA.
06Register for Tax Credits
Make a claim for Tax Credits if you have children under 16. The credits are means tested, but you only start to loose your entitlement to the child element when household income exceeds £50,000.
If you return to work, you may be eligible for working tax credits where you work or, if you have a partner, where you both work. If this is the case, you may also be entitled to help towards the cost of childcare. If your earnings have gone down due to pregnancy then it would pay to make a protective claim rather than one based on the previous year's earnings. Please contact us for details.
07Set up a salary sacrifice scheme for childcare costs
Receive some of your pay from the company in the form of childcare reimbursement. The first £55 of childcare vouchers paid through the company are a tax-free benefit, and if paid instead of salary will also reduce your national insurance liability.
08Have assets transferred to your children and save tax
Your children can receive income of up to £6,475 per year before being taxed. However parents will be taxed on any income over £100 on assets which they have transferred to their children who are under 18. Assets should preferably be transferred from grandparents or other relatives.
Children can also make gains of up to £10,100 tax-free. Transferring assets with better potential for capital growth, rather than income, is generally more tax efficient. A share in the family business may be suitable.
09Contribute to your child’s pension scheme
You can put up to £2,880 into a Children's Stakeholder Pension for each child and the government will add a further 20% to your contribution. Income and gains in a pension scheme are tax-free and your child will not be able to access the fund until they are 55.
10Employ your children
Subject to conditions, you may make your children who are over 13 employees of your business. Your business will get tax relief on the wage payments, and the first £6,475 of income is tax free in the hands of your child. Consider the legal implications of employing children between 14 and 18.
Coman & Co. are able to help with all aspects of tax planning, including keeping your tax liability as low as possible across the family. Please contact us if you would like to discuss any of the tips raised above.
Please note that the rates and tips in this guide are accurate only at the time of writing.
