Is wages, including family wages
tax deductible?

Yes. Wages, salaries and bonuses you pay to employees are allowable (GOV.UK), including wages paid to your partner, children or other relatives, as long as the pay is for real work at a rate you would pay anyone else (HMRC BIM47105). You cannot claim wages or drawings you pay yourself.

Employing people is one of the clearest business costs there is, and it does not matter whether the person is a stranger or your spouse. What matters is that the work is genuine and the pay is what the work is worth. HMRC does not disallow family wages because of the relationship; it disallows them when the relationship, rather than the work, sets the amount.

Is wages, including family wages tax deductible?

The HMRC rule

Salaries, bonuses, pensions, benefits, agency fees, subcontractors and employer National Insurance are allowable. Carers and domestic help are not. The rule comes from Staff expenses, HMRC Business Income Manual BIM47105: payments to dependants and close relatives, Work out your rental income when you let property.

GOV.UK lists employee and staff salaries, bonuses, pensions, benefits, agency fees, subcontractors and employer's National Insurance among the staff costs a sole trader can claim (staff expenses). HMRC's manual says a close relative's pay is not automatically disallowed: where there is equal pay for equal value, it is fully allowable, and only the part not paid wholly and exclusively for the trade is disallowed (BIM47105). The SA103F notes say not to include payments to yourself, and that employment costs not paid within nine months of the end of the accounting period are disallowable for that period (SA103F notes).

When you can claim it

• Wages, salaries, overtime and bonuses paid to employees.
• Wages paid to your spouse, civil partner, children or other relatives for real work at a commercial rate.
• Agency fees and the cost of temporary staff.
• Statutory sick, maternity and paternity pay you pay and cannot recover.

When you cannot

• Your own drawings, however you describe them.
• The excess of a family member’s pay above what the work is worth.
• Pay for work that was not done, or for work done for your household rather than the business.
• Nannies, cleaners and other domestic help for your home.

What to claim instead

As a sole trader, you are taxed on your profit, so what you take out is not a cost. If you want to be paid a salary by your business, that happens when you trade through a limited company, which is a different structure with its own rules. Your own pension contributions get tax relief separately, not as a business expense.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For wages, including family wages, the deciding rule is staff and subcontractors: salaries, bonuses, pensions, benefits, agency fees, subcontractors and employer National Insurance are allowable. Carers and domestic help are not.

Worked example: a plumber’s partner doing the admin

A plumber's partner does his bookings, invoicing and supplier orders for about eight hours a week. He pays her £13 an hour, a normal rate for the work locally, through payroll: £5,408 a year. That is allowable in full. Had he paid her £25,000 for the same eight hours, the part above a commercial rate would be disallowed.

What makes family wages allowable

Three things. The work must be real and for the business, such as bookkeeping, answering calls, cleaning premises or helping on jobs. The pay must be reasonable for that work, broadly what you would pay an unrelated person. And the money must actually be paid, ideally into the family member's own bank account, rather than recorded in the books and never transferred.

Payroll and PAYE

If you employ anyone, including a family member, you register as an employer with HMRC and run payroll, reporting pay each time you pay them through Real Time Information. You may not need to register if nobody earns above the Lower Earnings Limit, has another job or gets benefits or expenses, but you still need records. The employee pays Income Tax and National Insurance on their pay like any other worker.

National Minimum Wage

The National Minimum Wage and National Living Wage apply to employees generally, with limited exceptions, such as some family members who live in your home and take part in running the business. Paying at least the minimum wage also helps show the pay is commercial. Pay far below it for a lot of work can itself raise questions about whether the arrangement is real employment.

Paying children

Children can be paid for real work, subject to the child employment rules, which limit the hours and types of work for children below school leaving age and may need a permit from your local council. The pay must match the work: a teenager doing a few hours of filing a week earns a few hours' pay. HMRC looks closely at payments to young children, which are often not remuneration at all.

Timing and the nine-month rule

Wages and bonuses are deducted in the accounting period in which the work was done, but only if they are paid within nine months of the end of that period. A bonus declared at the year end and not paid within nine months is deducted in the period it is actually paid. On the cash basis, wages are simply deducted when they are paid.

If you are a landlord

Landlords can deduct the wages of people employed to provide services for the letting business, such as cleaners, gardeners or a caretaker, in costs of services provided, box 28 of the UK property pages (GOV.UK). The same commercial-rate test applies to relatives.

Where it goes on your return and in MTD

For a sole trader, the allowable part goes under wages, salaries and other staff costs (SA103F box 19 on the full self-employment pages). Under Making Tax Digital for Income Tax, it goes in the same category of your quarterly update, which is the category TapTax files it under when you record the cost.

For a landlord, it belongs in costs of services provided, including wages (property) (SA105 box 28 on the UK property pages), and in the matching category of a Making Tax Digital property update.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

Most sole traders now use the cash basis, the default from the 2024/25 tax year, which counts a cost when you pay it. On traditional accounting you count it when you incur it, and equipment you keep goes through capital allowances rather than expenses.

How much an allowable cost saves

The value of a deduction is the tax it removes from your profit, not the cost itself. At the basic rate a sole trader saves 26p for every pound of allowable expense, at the higher rate 42p, and in the personal allowance taper between £100,000 and £125,140 as much as 62p. Landlords pay no Class 4 on rental profit, so they save 20p or 40p.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep payroll records, payslips, Full Payment Submissions to HMRC, timesheets and contracts, and for family members, evidence of the work they do and the rate you pay for it. Payroll records must be kept for three years from the end of the tax year they relate to, and business records for at least five years after the 31 January deadline.

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep these records digitally and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028. The MTD requirement checker shows when it applies to you.

Common mistakes

• Recording family wages that were never actually paid.
• Paying a relative far more than the work is worth.
• Putting your own drawings through wages.

Related expenses

This item sits in the wages, salaries and other staff costs category, alongside childcare, employer’s National Insurance, pension contributions, private health insurance, staff Christmas parties and events and staff gifts and trivial benefits. The A to Z of expenses answers the same question for every other cost.

TapTax sorts each cost into the right category as you record it, applies the business share where you set one, and keeps the receipts with the figures, ready for your quarterly updates and final return.