School Fee's paid straight from Salary.

School Fee's paid straight from Salary.

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Hi,

Does anyone have any information on private school fee's being paid straight from an employer to reduce tax/ni payments ???

Thanks

Replies (8)

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Euan's picture
By Euan MacLennan
15th Jun 2011 11:32

Could save employee's NIC

School fees are a taxable benefit.  Page 23 of CWG5, Class 1A NI contributions on benefits in kind, tells you that:

if the employee contracts with the school, but the employer pays, the amount must be processed through the payroll and have PAYE tax and normal Class 1 employee NI contributions deducted.  Having added the amount of the fees to the gross pay before tax, there would need to be a deduction for the fees from the net pay.  Hence, it would cost the employee the tax & NIC (and the employer the employer's NIC).  The benefit needs to be reported on form P11D, but with no Class 1A NIC payable.if the employer contracts with the school and pays, it is not processed through the payroll, but is disclosed on the Form P11D with Class 1A employer's NIC being payable.  The employee's PAYE code will be adjusted to tax him on the benefit, but he would avoid the employee's NIC.

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By rachypachy167
15th Jun 2011 14:11

Employer to have Contract with School

I am being totally thick, so if the school fees were £1000 a month, the more beneficial way would be for the employer to have the contract with the school is that correct ?

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By gbuckell
16th Jun 2011 10:22

Is it possible for the employer to contract?

I agree with Euan's analysis of the different scenarios. My one concern is whether it is possible in practice for the employer to contract with the school. It is the parents' responsibility to educate their children. For the parents to step away and the employer to step into their place is not that easy. I believe there were a couple of Commissioners' cases on the issue a few years back where the taxpayer lost. I am not saying it is impossible but it is not easy. Correct paperwork is crucial. With the difference in NI only being the 2% employee contribution (assuming earnings are already above the upper earnings limit), it is questionable whether it is worth the hassle.

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By tladirect
18th Jun 2011 09:08

Employee NIC Advantage
This is interesting...I was under the impression that the saving/advantage of an employer paying the school directly would relate to the entire employee NIC in respect of the benefit and not just the 2% on any earnings over GBP 817pw.

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By tladirect
18th Jun 2011 09:11

Apologies!
Apologies - my reply did not take into account the assumption that the employee's earning already passed the GBP 817pw threshold!

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Euan's picture
By Euan MacLennan
18th Jun 2011 12:58

School vs Childcare

One of the ways for an employer to provide the tax-free benefit of childcare to its employees is to contract directly with the childcare provider.  I do not see why an employer would be barred from similarly contracting directly with a school.

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By gbuckell
20th Jun 2011 15:30

Not impossible

I am not saying it is impossible for an employer to contract directly with the school. I said that it is crucial to get it right. Simply having the employer receive the invoice and pay direct to the school is insufficient - see Ableway v CIR (2001 SC 294) and Frost Skip Hire v Wood (2004 SC 420) where the taxpayer failed.

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By Ernest N Dever
20th Jun 2011 17:14

Agree with the principles put forward here

I just wanted to add that there are similar considerations for employer provided childcare.  ie don't just say the employer's contracting; actually have the employer as a party to the contract to the extent of the first £243 a month of childcare.

One difference it seems to me that there will be is that employer provided childcare is generally dealt with by way of a tripartite arrangement.

As said though, if you want to get a favourable treatment, get it right.  Document it correctly and then correctly follow the documentation.  It sounds so obvious saying that implementation and execution are very important, but so many arrangements seem to fail on one or often both.

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