Hi
I had a call today from an existing client. He and his wife run their ltd company, they have two children between 5-9. He asked if there was a way in which he could put his children's tuition through their company in order to reduce tax, he advised that someone who he knows just puts it through as training! I advised that this sounds very wrong but I would look into it.
He asked if it could be set up as a bursery or a scholarship, his friend is also thinking (if possible) to do something similar and it may be something that they can do together if this is a more effective way of doing it.
I only want to know legal ways if any of doing this (obviously). I am not going to put my practice at risk and need to be certain about what i advise.
I have came across the follow areas that I need to read through but thought I would try my luck here in the meantime, and then base my conclusions on all information!!!!
Replies (17)
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I would say Yes you can pay for it through the company but:
1. No CT relief would be given
2. You would subject to a personal benefit in kind on the cost.
I can't see any way you can call this training.
Have a read of the links you posted
then you'll have a better idea if the issues.
"Please bear in mind I haven't read through anything as yet, so no need for any sarcasm on my ignorance on this subject."
Disagree
Best way is to get the company to contract with the tuition provider. The payment is then a BIK so it will be deductible for CT, but taxable as a BIK on the employee (plus class 1A NIC of course by the company). A small tax saving arises as he pays tax on the fee and not on an amount of income which net of tax/NIC pays the fee.
If the company just pays the fees without contracting with the provider, then it should go through PAYE system, but would still be deductible for CT.
It is not 'training' in the CT sense and it sounds like the bloke in the pub strikes again! No doubt pubman has done this and 'got away with it', doesn't mean it's right though!
If there are a number of children involved, your client could team up with his friend and seek some sort of group discount.
S Kutcha v HMRC - Scholarships to sons of company director
This may be relevant :
S Kutcha v HMRC (and related appeal)
http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j7288/TC02769.pdf
In S Kutcha v HMRC (and related appeal) (TC02769 – 5 July), a company made payments to two sons of one of its directors (K) while they were at university. HMRC issued assessments on K, charging tax on the basis that the payments were taxable benefits. The First-tier Tribunal dismissed K’s appeal, holding that the payments were taxable by virtue of ITEPA 2003 s 212. (The tribunal also upheld determinations charging NIC.)
Conclusion : ITEPA 2003 s 212 provides that ‘a scholarship which is provided for a member of an employee’s family or household is to be regarded ... as provided by reason of the employment’ and as a taxable benefit. The FTT upheld HMRC’s view that the effect of this provision was that the payments made to the director’s sons were taxable benefits.
CT saved?
Please tell me what I have missed out because I have been racking my brains! Thansk again for the precise responses.
The company would pay £2,731.20 less CT? Is that what you've missed?
What about reducing the salary to just above the LEL? Salary sacrifice?
Not adding anything...
... but if there are two children between 5 and 9, is it fair to assume that they are not between 6 and 8? :)
@ Triggle
Are you saying that director's remuneration in the form of a BIK isn't CT-deductible?
Steve
Are you saying that director's remuneration in the form of a BIK isn't CT-deductible?
Hi Steve
No I'm not - a BIK is an employee's salary by any other name.
I don't have time to do the number crunching at the moment but the idea was to reduce the salary to the least amount to secure the director a contribution year towards the State Retirement Pension then fill up the rest of his PA with the BIK.
He would, therefore, pay less personal tax on the BIK (some of it being covered by the PA). Of course, the Class 1A would be the same but the CT saving would be less and may get eveything back to square one.
I'm not too sure A E Scott's revised comp. above is accurate from first reading. But then again...
See
This link:
https://www.accountingweb.co.uk/anyanswers/question/school-fee-planning
Although no CT deduction is available, there should be no BIK etc. issues.
Grandparents
I'm sure that the man down the pub wasn't referring to this but.....have you considered the use of grandparents and trusts? Can suit certain circumstances.
Me too
Lots of sparring but no clean punchesIf someone would like to provide a calculation where the saving on putting the tuition through the company is more beneficial i would be pleased to see it
clients perception
Sometimes these things go through the accounts and are dealt with correctly by the accountant, resulting in no tax gain.
However, the clients perception is that something clever is being done and is quite happy. I don't advocate this, just sayin' like.