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tax position of payment from aging parents

Person reducing number of working days to help elderly parents. Parent supplement earnings

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An adult child reduces woorking days per week by 2 days in order to help aged parents (one beginning to suffer from dementia) with weekly chores (shopping, hair appointments etc).  Parents undertake to make up the (net) loss of earnings of those two days as they don't see why their child should be out of pocket through helping them.

Does the receipt from the parents count as taxable income in the hands of the child? 

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RLI
By lionofludesch
03rd Aug 2020 10:51

Domestic arrangement.

It's not a trade or profession.

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Replying to lionofludesch:
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By Tax Dragon
03rd Aug 2020 11:21

lionofludesch wrote:

It's not a trade or profession.

But that's not the main difficulty. Which is that HMRC may "regard" (HMRC's word) the parents as "non-business employers". HMRC adds "We recognise that many of these employers do not regard themselves as employers."

But there's no hint that HMRC's response is to (invite Parliament to) remove the tax obligations. Continuing the quote: "We have engaged with taxpayer groups in the past and will use these same contact routes to informally consult on the best way of managing the migration of these employers to standard PAYE."

This is all from TIIN25.

I'd guess that having 2 set days a week and doing the work for a set amount of pay doesn't help in making it look purely domestic and not at all (part time) employmenty.

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Replying to Tax Dragon:
RLI
By lionofludesch
03rd Aug 2020 12:29

Tax Dragon wrote:

I'd guess that having 2 set days a week and doing the work for a set amount of pay doesn't help in making it look purely domestic and not at all (part time) employmenty.

Those set days might be dictated by the set days of the worker's proper job.

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Replying to lionofludesch:
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By Tax Dragon
03rd Aug 2020 16:04

lionofludesch wrote:

Those set days might be dictated by the set days of the worker's proper job.

What, unlike anyone else whose working week is split 3/2 between different jobs?

The question is non-trivial (DJKL's ESM refences need to be read in full and in context). I posted because the then extant answers were making it seem otherwise.

And of course (as Wilson pointed out), whether or not there's an employment is not the end of the matter. [Unless there is one, I guess! D'oh!]

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Hallerud at Easter
By DJKL
03rd Aug 2020 10:52

Probably not.

I suspect it might be possible if the child was say a self employed carer to others as well, but to me it looks to be merely a family arrangement, like kids subbing their parents when living at home and paying towards utilities (not that they actually ever give/gave me anything beyond the odd paying for a carry out meal)

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By Paul Crowley
03rd Aug 2020 10:55

I agree not taxable.
For IHT could also be gift out of income provided parents income is sufficient

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Psycho
By Wilson Philips
03rd Aug 2020 12:42

If s/he's providing a service in return for remuneration I'm struggling to see how that is not taxable in some form. Why should it make difference if the person providing the service is a relative? I prepare my parents' tax returns and charge them for it (and include it in my taxable income).

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Replying to Wilson Philips:
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By mbee1
03rd Aug 2020 13:28

Wilson Philips wrote:

If s/he's providing a service in return for remuneration I'm struggling to see how that is not taxable in some form. Why should it make difference if the person providing the service is a relative? I prepare my parents' tax returns and charge them for it (and include it in my taxable income).

Mean or what?

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Replying to mbee1:
Psycho
By Wilson Philips
03rd Aug 2020 14:07

I don't make the rules. If you're talking about charging my parents, they can easily afford it :¬)

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Hallerud at Easter
By DJKL
03rd Aug 2020 13:50

https://www.gov.uk/government/publications/public-guardian-practice-note...

Tax liability on family care payments
HM Revenue and Customs (HMRC) regards payments to family members as voluntary payments exempt from tax and national insurance (Employment Status Manual – ESM 4016 and for this reason they are often called ‘family’ payments.

HMRC will consider a number of factors when deciding if payments are tax exempt.

OPG cannot give advice on tax matters and deputies will need to resolve any issues about treatment of payments directly with HMRC.

If HMRC clearance cannot be obtained, family members may sometimes need to be directly employed as carers alongside professional carers and to pay tax and national insurance on their payments.

https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm4015

"Is the careworker a spouse or close relative?
For NICs purposes, if someone is employed by a close relative in a private dwelling-house in which both the person employed and the employer reside, disregard it unless the employment is for the purpose of any trade or business being carried out in that private dwelling-house by the employer (see ESM4155 and ESM4156)."

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David Winch
By David Winch
03rd Aug 2020 18:15

Not a tax point, but perhaps a point the OP might like to flag up to his client.
Family relationships can be tricky - and sometimes squabbles can arise in families over money & inheritances.
If the adult child is not an only child this is particularly relevant.
Do get agreement made between parents & child(ren) and put in writing if possible.
I have seen circumstances where daughter has reported son to police for theft along the lines of "My parents now have dementia & my brother has spent all their money (leaving nothing in our parents' estates for me)".
Such an allegation causes all sorts of grief!

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picture of a mushroom
By mushroom_dept
04th Aug 2020 09:39

Thanks to everyone for your views, advice and pointers.

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