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PHD Stipend part financed by company

Tax Treatment of Stipend

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I have a client who is s shareholder of a close company (not employee) and wishes to do a PHD with a nearby university. The spipend on offer to her is £15000, but the company she is a participator of will pay £7500 to the Uni and then it will pay her £15K in 4 instalments over 12 months. The company cannot afford the cash outflow and so she is considering injecting it as a loan. 

I understand that stipends are not normally taxed, but I wondered what her and the company's situation would be in this situation. She accepts that she may need to just gift the company the money to pass on the the Uni. I believe there is already some associated between the company and Uni (loan of test equipment to the Uni)

If she loans the money (or not) will the company get a deduction (for CT) for its payment to the Univerity?

If loaned to the company, could she have a tax charge as in receipt indirectly of monies from the company?

Any thoughts much appreciated

WB

Replies (16)

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By lesley.barnes
27th Oct 2019 16:23

Why is the company paying the university £7.5k for a shareholder who isn't an employee of the company? What benefit will it bring to the company. Is it instead of dividends and are the other shareholders getting dividends in proportion to their shareholdings as well? It doesn't sound like it if the student is loaning the company the money because of cashflow. Is she an officer of the company? My vote for this is it's a daft idea I can't see any benefits for the company. It can't reduce the corp tax as from what you say the student doesn't work for them "wholly and exclusively test"

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By Accountant A
27th Oct 2019 17:12

As lb suggests, either there is some missing information or the proposal seems completely pointless.

What is the thinking behind the company being involved in the shareholder's PhD funding?

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By Tax Dragon
28th Oct 2019 09:12

If you want any other feedback, I think you need to answer the opening why-is-this-happening? response.

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By winstonb
28th Oct 2019 09:33

Thanks to all for the input so far. The reasons the company is interested in doing this is because it believes there will be benefits in sharing the research - this is a tech company and some of its products being developed will be used/tested by the university. The benefits may be nebulous/hard to prove and so I can see why a deduction may not be allowed. The shareholder is not currently an officer (well not a paid one) as the company cannot afford to give her a salary. Hope this clarifies things a little.
WB

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Replying to winstonb:
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By lesley.barnes
28th Oct 2019 10:53

Is she an officer of the Company ie Director or Secretary of the Company? Does this company belong to a relative? I still don't think that it is allowable under "wholly and exclusively" I have a couple of client who develop products and work with various Universities and other businesses to test out products. They don't pay the uni's. What they do is employ PHD students that the uni's recommend for a period of time. The companies really are their employer - PAYE, NI and pension. They work at the businesses premises under the supervision of staff within the business.

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By winstonb
28th Oct 2019 11:18

Thanks Lesley - no, she's not an officer, but is a minority shareholder (as is her husband). My thoughts were if she paid £7500 into the company and it then passed it on, then that's just tax neutral. If she put in as a loan, I think you're saying (and I think I might agree) that the company would not get a deduction. I've not come across a 'PHD funding' situation in practice before, so am grateful for your guidance
WB

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Replying to winstonb:
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By WhichTyler
28th Oct 2019 11:32

I think this would usually work like this.

The University charges the Company for some research and the company will share in the IP that it generates. So that is a fee from the university to the company.

The university then pays a stipend to the student to perform the research

What seems odd here is that the company can afford to pay the university, but can't afford to pay the shareholder. And is only paying the university on condition that the payment then goes back to the shareholder. Which is why it looks fishy.

If the university will only do the research with a £7500 subsidy, then why doesn't the shareholder agree to do it for £7500 stipend, and then licence (or sell) their personal IP to the company?

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Replying to WhichTyler:
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By Tax Dragon
28th Oct 2019 14:34

Won't the IP belong to the Uni?

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Replying to Tax Dragon:
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By WhichTyler
28th Oct 2019 15:39

not if the research agreement says otherwise. Normally each party brings their own existing IP to the table (but retains ownership of it) and any IP arising from the research is either jointly owned or owned by one and (free, perpetual, exclusive) licensed to the other

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Replying to WhichTyler:
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By Tax Dragon
29th Oct 2019 08:45

I've slept on this and decided IP is one of those things I can't quite get my head around. Maybe IP in general, but personal IP (as you mention above) in particular.

You contribute quite regularly to these discussions. It's obvious to me that you know stuff I don't. Stuff like this, for instance.

Is that your personal IP? Can I buy it off you?

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Replying to Tax Dragon:
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By WhichTyler
29th Oct 2019 09:51

One of the problems with IP is that it is hard to do at high level. Once you get beyond an individual's original, unique and uniquely expressed creation, there is an inevitable mixture of collaboration, plagiarism, exploitation, interpretation & legal precedent etc. A bit like tax in some ways

so if you pay me for a training session, there is probably no ip in the knowledge or understanding that ends up in your head, but there may well be in the content or format of the notes, slides, handouts, branding that I use in the session. So if you re-use them without my permission there may be a problem.

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Replying to WhichTyler:
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By Tax Dragon
29th Oct 2019 10:17

Thank you. That helps.

I'll sleep on it some more.

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By Tax Dragon
28th Oct 2019 14:32

EIM06250 is worth a read.

It's probably too simplistic to say "when it's research, it's taxable" - but not way too simplistic.

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By winstonb
29th Oct 2019 06:57

Thanks TD, much appreciated
WB

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By winstonb
29th Oct 2019 17:12

..And of course thanks Witch Tyler - glad it stimulated discussion !

WB

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By whitevanman
29th Oct 2019 20:03

Sadly another post that is rather less than clear.
It would appear that Mrs X is a shareholder in the company. She wishes to do a PhD and the university will pay her a stipend of £15k for doing so. For some reason, the company wants to pay to the university a sum which is exactly half the amount of the stipend. Odd because the company has not the funds to do so.
So, Mrs X proposes that she should loan the £7.5k to the company which will then pay that sum to the university and (possibly) claim it as a business expense.
The question I would ask (apart from those already covered in the thread) is, precisely what is the connection between the payment to the university by the co.pany and the payment of the stipend? It does look as if the two are connected and in that case it is likely the payment would be disallowed for tax purposes as not being "wholly and exclusively" etc.
As to whether it might also be a distribution, who knows!
Sounds like a crazy idea to me (possibly designed to get tax relief on the £7.5k and not at all well considered)!

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