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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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.
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].
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.
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.
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.
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.
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?
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.
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.
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.
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!
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.