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Paying wages to connected persons

Source: HM Revenue & Customs | | 27/12/2019

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.


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McAllisters is a partnership trading from Paxton House, 11 Woodside Crescent, Glasgow providing accountancy and tax services and general business advice and is a member of ICAS (Registration No 0342) and an FCA exempt professional firm (No 301235). Its VAT number is 261 3019 94

McAllisters (Scotland) Ltd is a related business providing tax and business advisory services to McAllisters and its clients. McAllisters (Scotland) Ltd is registered in Scotland (Registration number SC146856). Its VAT number is 624 0564 62.

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