Paying wages to connected persons

28 December 2019

The definition of a connected person for tax purposes includes certain relatives, trustees, partners and companies.

A person is connected with an individual if that person is

• the individual’s spouse or civil partner
• a relative of the individual
• the spouse or civil partner of a relative of the individual
• a relative of the individual’s spouse or civil partner
• the spouse or civil partner of a relative of the individual’s spouse or civil partner.

The term 'relative' does not cover all family relationships. In particular, it does not include nephews, nieces, uncles and aunts.

When it comes to making a claim to deduct wages paid to relatives or connected persons, the reason for the payment must be wholly and exclusively for the purposes of the trade. If there is another reason (either in addition or instead), then the deduction will not be allowable. There have been a number of important cases that have looked at this issue including in relation to payments made to minor children and spouses.

Schedule a Free Consultation

For help with either phase, please schedule a telephone/video call appointment with us as soon as possible.