Treatment of college fees

Treatment of college fees

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A limited company client has contracted for and paid the college fees of an individual.

The individual is not connected to the director in a family sense. She is not an employee but does help the company out and has contact with the customers. The college course is relevant to the client's industry and the work the individual does. There is no guarantee that the client company will benefit directly after the course has finished.

The client feels the payment of the college fees is a reasonable quid pro quo considering no payment has been made to her for the work she has done.

What would you think to be the correct tax treatment here? Initially, my thought was that this was sponsorship and not allowable. But now I know that the individual had done some work it would be allowable if the individual was an employee, but as she hasn't been paid as an employee . . . 

Any thoughts gratefully received

Replies (22)

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Red Leader
By Red Leader
26th Sep 2013 18:08

get an invoice?

As you know, the employment/self employment divide is absolute. There isn't a middle case in tax. I assume that you view this individual as not in employment.

Get the individual to invoice the client for the value of the college fees. The client obviously feels that they have received value, so there's no issue of false accounting.

Just my thoughts.

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Replying to kaff:
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By mikewhit
26th Sep 2013 22:32

Middle of three ...

"As you know, the employment/self employment divide is absolute. "

Hah ! Apart from the fact that you could have three different employment statuses with the proposed LLP changes !

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By andy.partridge
26th Sep 2013 18:20

@ Red

The college has billed the client and the client has paid it.

Apologies, the issue for me is whether this is a non-deductible sponsorship, a deductible training expense, or even (OK, a long-shot) 'net wages'?

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By Steve Kesby
26th Sep 2013 18:32

Err...

... not connected with the director in the family sense? Does that mean she's connected in the carnal sense?

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Replying to Grantj:
Red Leader
By Red Leader
26th Sep 2013 20:11

@Andy

contractor's expense?

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Replying to mohit1990:
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By andy.partridge
27th Sep 2013 09:58

Reality of the transaction

Red Leader wrote:

contractor's expense?

A contractor, who is not self-employed, doesn't invoice, doesn't get paid and has no contractual obligation? To my mind, this is an internship that didn't solely involve shadowing and so might have entitled the individual to the minimum wage. That would create a justifiable training expense. A can of worms. Alternatively, it looks like sponsorship.

Happy to be persuaded. Any more thoughts?  

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By B Roberts
27th Sep 2013 10:14

Not connected ?

There must be some connection between the company and this person ?

Is there any connection between what the person is studying and what the company does, or are they totally unrelated ? - eg. is the director of a building firm paying for his girlfriends hairdressing course ?

I can't see anything other than sponsorship - as you say, anything else would open up one or several cans of worms.

Just out of interest, what kind of amounts are we talking about ? - i.e. cost of course, turnover/profits of the company ?

 

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By andy.partridge
27th Sep 2013 11:05

@ B Roberts

She is someone the director met generally in the running of his healthcare business. The college course is in a specialist healthcare area.

His attitude was, 'Ok, come and work with me. I won't pay you, but I'll buy you that college course you want to do.'

The college fees are a few thousand pounds, the company turnover £100k or so. 

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By WhichTyler
27th Sep 2013 11:39

'Ok, come and work with me. I won't pay you'.

Takes gun from holster, points at foot, fires...

Hello NMW

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By Alfie Bet
27th Sep 2013 11:46

Sounds like...

... a scholarship and work placement. Have they gone over the year yet?

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Replying to blox:
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By andy.partridge
27th Sep 2013 14:32

Good point

Alfie Bet wrote:

... a scholarship and work placement. Have they gone over the year yet?

Less than a year, but they weren't required to do the work as part of the course.
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Euan's picture
By Euan MacLennan
27th Sep 2013 12:27

Clients! Don't you just love them?

This is a classic example of a client doing a deal which he thinks is entirely reasonable, but then the accountant has to sort out the accounting and tax consequences!

Sorry!  I have no helpful advice on the topic!

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Replying to Matrix:
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By andy.partridge
27th Sep 2013 12:40

But Euan . . .

Euan MacLennan wrote:

Sorry!  I have no helpful advice on the topic!

I thought this would be an area of particular interest to you? Your advice is always helpful and welcomed.

The client is charming, reasonable, generous and bemused.

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By Charles Kwan
30th Sep 2013 12:35

The easy way

1. The girl probably not in business (trading as such). Therefore, that is an expensive gift from your client.

It might result in the expenses not being allowed for tax purpose for your client.

2. If she works for your client on casual basis,  whether it is part of the deal to have the gift,  you still have to account for minimum wages.

 

Easy way out is to pay her minimum wages for work she did for your client - allowable expenses for your client.

The training course she received free will be allowable expenses for your client as it is job related.

 

Why make simple thing complicated??

 

Unless your client does not want his wife to know what is going on lmao

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By andy.partridge
30th Sep 2013 14:13

@ Charles

I agree with you, but here I am just learning what has happened while doing the year-end accounts. If only he had mentioned to me that he was intending to do it. I think there are many clients who just like to do their own thing and leave us to pick up the pieces later.

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By tonycourt
30th Sep 2013 15:35

Sounds more complicated than it might be

 

 

'Ok, come and work with me. I won't pay you, but I'll buy you that college course you want to do.'

If the statement is a true representation of  what your client and the girl agreed then it's definitely not a gift. A gift is something for free, it might come with strings attached, as in a trust, but by definition it cannot require the recipient to provide a quid pro quo. So if it's not a gift then what is it?

From what you describe it's not an internship, particularly because financial reward was involved. 

From your clients point of view it was a payment for services. No matter how loose the arrangement - he offered work and paid someone, albeit indirectly, for it. So in my view that makes it a tax deductible expense for him.

Was it an employment, casual or otherwise or a self-employment. Well, you'll just have to analyse the terms and conditions impose (or not imposed) by your client. If it's an employment then there might be trouble for your client, if not then he has no worries; claim the expense and let the girl worry about reporting the income- although it would be fair for your client to give her a pointer or two.  

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By Alfie Bet
01st Oct 2013 12:18

@Basil

Basil, I think you do need to do more research.

I agree that purpose rather than effect is the factor that determines deductibility for the company.

I think the "status issue" is being over examined. The knock on issue here is the National Minimum Wage, which doesn't just apply to employees; it applies to "workers".

A worker is defined as a person who provides their personal service under any form of contractual relationship otherwise than in the course of a profession or business undertaking.

Your having concluded (correctly I'd say) that she isn't self-employed, means that she's a worker if she's supplying her services under any form of contractual relationship.

If there's no contractual relationship, then there's no obligation for Andy's client to pay for the training and we're back to wondering what multifarious purposes the payment might have.

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By Alfie Bet
01st Oct 2013 17:15

Sorry Basil

I thought the point I was making was perfectly clear.

If there is any sort of contractual arrangement under which this girl's personal services are being supplied, then she's a worker and must be paid the national minimum wage, even though she might not be an employee.

I'd understood that to be the OP's concern.

So this bit of your post is incorrect:

fawltybasil2575 wrote:

When reading most questions on AWEB, I find that I need to know more and/or to research more, in order to supply what I consider an accurate and comprehensive reply. This question however is the "exception

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By andy.partridge
02nd Oct 2013 11:00

Is it allowable?

Thanks to everyone for excellent responses that has made me think. A difficult one to arrive at a consensus. Client is not being very responsive on this!

It seems to me that if the client had paid MW then the training would be allowable. I am coming to the conclusion that the training is not allowable because of the distance the client has put the relationship between him and the 'worker'.

If the training is allowable there might need to be a retrospective look at MW, payment, P35/P14 filing, RTI etc. I say this because the client has contracted with the college directly, ie. there has been no payment to the worker. I don't expect that to be something the client wants to look at, but the option is there and will certainly make him think before doing anything similar again.

I know, this conclusion isn't fireproof, but there doesn't seem to be one that is.

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By paddy55
02nd Oct 2013 23:47

Payment

The woman has been given money (by way of payment of course fees) by the company. It is uncertain why she was given the money.

It could be:

1. This is a hands-on training course provided by the company for one of its workers and is thus deductible to the company but not taxable on the worker.

2. This is remuneration paid to the worker as an employee. It is deductible to the employer and taxable on the employee.

3. This is  gift or donation made by the company to the woman. It is not deductible to the employer and is not taxable on the woman.

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Replying to jameshirst:
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By andy.partridge
03rd Oct 2013 09:39

Yes

paddy55 wrote:

The woman has been given money (by way of payment of course fees) by the company. It is uncertain why she was given the money.

It could be:

1. This is a hands-on training course provided by the company for one of its workers and is thus deductible to the company but not taxable on the worker.

2. This is remuneration paid to the worker as an employee. It is deductible to the employer and taxable on the employee.

3. This is  gift or donation made by the company to the woman. It is not deductible to the employer and is not taxable on the woman.

But not all 3! Therein lies the problem.
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By Colinc
03rd Oct 2013 09:38

Other suggestions

I think the main issues have been covered within the answers but wondered if any of the following points might be relevant:-

1. Can you not split the fees into remuneration or payment for work done ( a reasonable %) and then the balance being however you decide to classify it.

2. You could classify it as a loan to the Lady and then as she continues to help the company...you pay her remuneration to clear the loan down.

3.Is there not a danger that the Revenue would class this as Directors drawings and then you run the risk of paying the higher IT and NIC rates for the business owner?

Just my twopence

 

Colin

 

 

 

 

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