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Remuneration or Parental Gift?

Self-employed client now caring for ailing, elderly dad who compensates him financially.

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I have a self-employed client who has more or less had to put his work on hold, whilst he spends most of his time caring for his 96 year old, ailing father.  If my client were not doing this, his dad would have to move into a nursing home.  Acutely aware of the impact this is having on his son's finances, his dad is giving my client the equivalent of £400 per week, wanting to make a payment every 7 or 8 weeks.  My client has asked me about the tax position.

 

My client's dad gave him £3K at the outset, which he regarded as a gift (using the annual IHT exemption, I am guessing).  However, with the passing of a couple of months, dad wants to give him another lump sum.  The question is, does this represent taxable remuneration for services provided; or in view of the father/son relationship, can it be seen legitimately as a succession of parental gifts?  

 

Father and son are both absolutely straight and are not looking to dodge or avoid anything: they just want to get it right.  I think that dad has probably given all of his three children financial help in recent years, but this latest example is definitely linked to my client acting as carer.

 

I am tending to the view that this represents taxable remuneration but before going back to my client, I would value greatly, the opinions of other AWebbers. 

Replies (16)

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By Justin Bryant
07th Jun 2022 10:44

I don't think even HMRC would regard that as anything other than a gift (or a series of gifts), but to be on the safe side you should perhaps document it as such and do lumpy/irregular gifts.

If it was income taxable it would at least be outwith IHT.

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Replying to Justin Bryant:
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By Hugo Fair
07th Jun 2022 11:12

100% agreed.
Obviously the reverse of Justin's comment also applies (i.e. do NOT put anything in writing that suggests a correlation between payments and 'services', do NOT make payments via DD or SO, etc).
If it *was* subject to IT then the father would be the employer so would have to register for and administer a PAYE scheme (which would be the case if a 3rd-party independent carer rather than son was doing the caring) ... so to be avoided!

[Obviously the IHT angle is quite separate - especially in the light of the comment about gifts to other children - but don't forget the 'out of excess earnings' option].

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Replying to Hugo Fair:
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By Tax Dragon
07th Jun 2022 11:38

By implication, you agree with the OP's thought that, if there is a correlation between provision of care and receipt of money, then the receipt is employment income.

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Replying to Tax Dragon:
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By Hugo Fair
07th Jun 2022 12:42

Not quite what I said ... but, to be clearer, I believe that HMRC *could* choose to interpret any "correlation between provision of care and receipt of money" as meaning the receipt should be treated as employment income (as it certainly would be if provision was via an unrelated party - whether professional or neighbourly).
Therefore, avoiding any such correlation reduces that opportunity for HMRC.

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Replying to Hugo Fair:
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By Tax Dragon
07th Jun 2022 12:55

Is it not rather a question of whether there is an employer-employee relationship? If there is, then that trumps the father-son relationship in determining the tax.

Might there not in fact be advantages to forming an employer-employee relationship? To dismiss it as you did just because of associated admin tasks seems unusually narrowminded for a polymath such as yourself.

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Replying to Tax Dragon:
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By Hugo Fair
07th Jun 2022 13:26

Flattery (inverted or otherwise) will get you a long way ... and you're quite right that I was breaking my usual more purist stance (of let the facts determine the outcome).

FWIW I did so consciously (albeit with a slight sense of queasiness) having seen a number of those in need of full-time care, but without access to family-based support, setting up and operating a PAYE scheme simply to pay their carer/nurse ... and then being savaged by HMRC for making elementary mistakes.

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Replying to Tax Dragon:
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By WhichTyler
07th Jun 2022 15:52

Tax Dragon wrote:

Might there not in fact be advantages to forming an employer-employee relationship?

Including a contractual redundancy payment when the inevitable happens? I haven't though this through but depending on other circumstances it may be of interest?

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Replying to WhichTyler:
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By Geoff56
07th Jun 2022 16:43

I think everyone will be astonished if dad survives for two years, so the question of a statutory redundancy payment would not arise.

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Replying to Geoff56:
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By Mr_awol
07th Jun 2022 17:09

Might that be even better if a non contractual payment by the executors were made (tax free) could it be removed from the estate (assuming IHT were applicable)?

I wont pretend to know whether the son, as executor (and lets for a minute assume sole beneficiary) could award himself a nice fat £30k tax-free termination payment to save £12k in IHT, but i find it an interesting concept.

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By Geoff56
07th Jun 2022 14:43

Thank you for all responses thus far. Each and every one is appreciated.

There is no doubt that the relationship between the two remains very much father/son, rather than employer/employee, but would HMRC view it that way?

The thought of 96 year old dad having to be responsible for a PAYE scheme fills me with dread. Such is the state of his health, this is unlikely to be more than a relatively short-term arrangement.

I haven't discussed the mechanics with my client if it is seen as taxable earnings, but I would hazard a guess that he would expect to be able to include it with his self-employment (compensation for lost earnings) or declare it as miscellaneous income. I doubt if the words 'PAYE scheme' have occurred to him.

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By gillybean04
07th Jun 2022 16:17

I think I'd ask some further questions of them.

Why is the amount £400, why not £300 or £500? Are any similar payments made to other children who aren't performing care duties? How does dad decide how much to give each? Were payments to son assessed on same basis as payments to other children? If son was to stop caring for dad, would the payments be decreased or stopped?

If, outside the tax scope, the council was questioning him over deprivation of assets, would he still claim its a gift or would he be claiming it's payment for services?

For some reason I'm thinking of that case where the taxpayer claimed he wasnt lying to authority A, just to authority B, and this was why his submissions to both contradicted one another. Although I'm sure he'd have told authority B he wasn't lying to them, just to authority A! (I think an accountant who had "pimped out" his home?)

Edit. That's not to say I think client would say anything different, but raising these queries can help make it clearer to identify purpose/intent.

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Replying to gillybean04:
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By Hugo Fair
07th Jun 2022 16:48

I think the case you're trying to bring to mind is the one at https://www.accountingweb.co.uk/tax/business-tax/planning-lapse-hits-acc... ?
That of course revolved around a supposed professional who was a total stranger to the concept of truth, which is obviously not the case here.

But your suggested questions are good ones (as is the hint that sometimes you win on one tax by falling foul of another cost)!
And as per TD's remonstrance of me above (playful or otherwise) you're right to focus on obtaining the facts rather than pre-deciding the desired outcome.

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Replying to gillybean04:
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By Geoff56
07th Jun 2022 17:00

This is just an arrangement between the dad and my client, who is providing hours of care every week. I have a feeling that my client actually stays overnight. The other two children don't live locally and as far as I am aware, are not involved in his care.

The question of deprivation of assets is not relevant at present. My client is providing care precisely so that dad does not have to go into a nursing home, which he would hate.

At the moment, no-one is claiming one thing or the other. My client and his dad are looking to me for guidance as to how these payments should be treated. I have known them for years and they are both as honest as the day is long.

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Replying to Geoff56:
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By gillybean04
08th Jun 2022 00:15

Sorry. I wasn't implying deprivation would be an issue. Just that sometimes looking at it from different angles can help make a decision clearer. I was using deprivation as an example, and it was the example that made me think of the "professional" Hugo refers to - not your client!

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Replying to gillybean04:
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By Geoff56
08th Jun 2022 09:32

I guessed that was what you meant gilly, but thanks for clarifying.

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RLI
By lionofludesch
08th Jun 2022 06:50

Sounds like a domestic arrangement to me. Rather like me giving Mrs Lion her housekeeping money. Would HMRC have treated it as wages, allowing me to deduct it from my profits and for her to use her personal allowance? I doubt it.

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