II have a client who is a teacher at a private school. The client’s children attend the school, he is given preferential rates on the fees and the agreed fee is deducted from his salary by Salary Sacrifice.
The school has issued a P11D for the Salary Sacrifice value. Is this correct? My limited understanding of Salary Sacrifice is that it was dealt with in the payroll?
Many thanks
Alex
Replies (11)
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What is the level of the salary? One assumes that it is more than £8500.
p.s. Why is an employed teacher in self assessment?
Agree that on the basis of the facts provided
there should be no P11D benefit - if salary has been reduced and effectively 'paid' over to the school.
Has the client spoken to the Bursar or whoever deals with the school payroll and P11D preparation?
any benefit is the 'cost' to the employer
there is case law to the effect that the cost to a school of providing education for one more pupil (or even two or three, who happen to be those of staff members) is very small - the fees charged to external parents do not (or should not) represent the cost so even if they were half this might still be more than any taxable benefit,where the teacher did not make a salary sacrifice contribution....
Yes indeed Pepper v Hart. I was trying to understand why the school might have thought there may be a BiK.
P11D
School fees for employees’ children
By extension, salary sacrifice is just as tax-effective for discounted school fees. Although discounted fees are not an exempt benefit, as the benefit-in-kind charge is limited to the marginal cost, there is still significant scope to make savings.
HMRC accepts, following the landmark Pepper v Hart case, that the benefit-in-kind charge arising is limited to the marginal cost to the school of providing the place, 15 per cent of the total fee is accepted automatically, although a lower figure may be used if a reduced marginal cost can be evidenced.
see http://www.fismagazine.co.uk/financial/accounting/salary_sacrifices.html
The "benefit" is taxable
The "benefit" is taxable under section 62, rather than Chapter 10 (where Pepper v Hart would apply), in the circumstances described.
The author of the article to which stratty has linked describes a situation where the place is provided, and the employee agrees to a reduced salary, but the salary sacrifice is not replacing an alternative obligation to pay.
So the amount of the salary sacrifice has been correctly reported on the P11D, in my opinion.
I would also expect the salary sacrifice amount to be liable to Class 1 NIC via the payroll, rather than being liable to Class 1A, in these circumstances.
If the school has done both of those things, the school has got it right, in my opinion, and the teacher is no better off than had it come out of their net pay.
The concessionary fees can be very low, perhaps only 1/5 of the normal fee. So a BiK can arise between this amount and the cost to the school of providing the place for the child.