Independent School Fees & Ltd Companies - one for Eric?
Discussion
Hi Eric,
I recently heard that a few people are using their Ltd companies to pay for their childrens private education (not childcare vouchers like busy bee, care-4 etc but proper independent school fees).
How can this be possible? Any idea's as to what these people are doing? It was something on the lines of letting the company pay but then decreasing that from the salary?
I recently heard that a few people are using their Ltd companies to pay for their childrens private education (not childcare vouchers like busy bee, care-4 etc but proper independent school fees).
How can this be possible? Any idea's as to what these people are doing? It was something on the lines of letting the company pay but then decreasing that from the salary?
having been the beneficiary of such private education (and sadly not cheap for the old man), he looked at doing this, in order that he wouldn't pay tax and NI on the fees.
Sadly the tax man rumbled it, and he had to pay the tax (thankfully at 22%).
I wouldn't be surprised if there are some loopholes, sponsorship / scholarship as such, but if it is in the family name as such, as for me, I am sure the dear taxman wouldn't look toooo favourably upon such practice.
Sadly the tax man rumbled it, and he had to pay the tax (thankfully at 22%).
I wouldn't be surprised if there are some loopholes, sponsorship / scholarship as such, but if it is in the family name as such, as for me, I am sure the dear taxman wouldn't look toooo favourably upon such practice.
I read the website link and it all looks rather flakey to me.
I certainly think that the payment of dividends to family members who have no real input into a company is an area that is under VERY close scrutiny by the Revenue (especially after the Arctic Systems case) and a scheme like this would be asking for their attention.
There is no law stopping a company paying for the education of directors'/employees' children. The company will even be able to claim Corporation Tax relief on those costs.
However, the individual directors and/or employees will be taxed under the PAYE system through the application of Benefit in Kind rules and the employer will be liable to Class 1A National Insurance contributions on the value of the Benefit.
In most cases, the employee will not be subject to a Class 1 liability on the benefit..
I certainly think that the payment of dividends to family members who have no real input into a company is an area that is under VERY close scrutiny by the Revenue (especially after the Arctic Systems case) and a scheme like this would be asking for their attention.
There is no law stopping a company paying for the education of directors'/employees' children. The company will even be able to claim Corporation Tax relief on those costs.
However, the individual directors and/or employees will be taxed under the PAYE system through the application of Benefit in Kind rules and the employer will be liable to Class 1A National Insurance contributions on the value of the Benefit.
In most cases, the employee will not be subject to a Class 1 liability on the benefit..
Thank you Eric. The way the website talks about doing it seems quite dodgy/risky to me too.
Say I was paying £800 a month in school fees what kind of BIK and C1A NI contributions what I be looking at then?
My accountant tells me its not worthwhile going down this route but people around me seem to be funding their kids school fees through their companies.
I want to know if its worth doing it?
Thanks for your help
Say I was paying £800 a month in school fees what kind of BIK and C1A NI contributions what I be looking at then?
My accountant tells me its not worthwhile going down this route but people around me seem to be funding their kids school fees through their companies.
I want to know if its worth doing it?
Thanks for your help
Sorry, but I won't do calculations of this specific nature. You obviously have an accountant and I wouldn't want to step on his or her toes, ethically speaking.
If you know people who do pay school fees through their companies - they may very well be declaring the BIK and paying the tax and NI as they are required to do.
If you know people who do pay school fees through their companies - they may very well be declaring the BIK and paying the tax and NI as they are required to do.
Edited by Eric Mc on Wednesday 17th September 15:08
Okay Eric, thanks for your help.
Yes I have an accountant but he'll be changed very soon as I cant pay an accountant who comes up with quotes like "trust me mate its not worth it for you" when i ask him to show me the calculations on what he bases his comments on he has nothing to show me!
PITA!
Yes I have an accountant but he'll be changed very soon as I cant pay an accountant who comes up with quotes like "trust me mate its not worth it for you" when i ask him to show me the calculations on what he bases his comments on he has nothing to show me!
PITA!
535dman said:
Okay Eric, thanks for your help.
Yes I have an accountant but he'll be changed very soon as I cant pay an accountant who comes up with quotes like "trust me mate its not worth it for you" when i ask him to show me the calculations on what he bases his comments on he has nothing to show me!
PITA!
OK -= I'll relentYes I have an accountant but he'll be changed very soon as I cant pay an accountant who comes up with quotes like "trust me mate its not worth it for you" when i ask him to show me the calculations on what he bases his comments on he has nothing to show me!
PITA!
£800 x 12 = £9,600
Income Tax payable at 20% - £1,920
Income Tax payable at 40% - £3,840
Class 1A NI @12.8% - £1,228.80
Corporation Tax Saving (assumed liable at 20%) (£9,600 plus £1,228.80) = £10,828.80
£10,828.80 @ 20% = £2,165.76
So, personally, you would pay extra Income Tax of either £1,920 or £3,840 (or somewhere in between - depending on whether how much of the benefit is taxed in the higher rate tax bracket).
The Company will reduce its Corporatoin Tax liability by £2,165.76 but it will have had to pay extra Class 1A of NI of £1,228.80 so the overall tax saving for the company would be £936.96.
Where in the UK are you based?Just to clarify where I think the overall tax/NI savings would occur -
If the company simply paid you additional salary to cover the school fees, the company would end up paying a certain level of Corporation Tax and Employer's NIC and you personally would pay PAYE and Employee's NIC on the school fee amount.
If the company paid the school fees directly, the Corporation Tax would be essentially the same as would the Employer's NI contribution. However, YOU would pay less personally to the Revenue because the school fees amount would only be subject to PAYE and not the Employee's NI contribution.
This is a rather simplified explanation as there are some further complications in that, if the company was paying you additional salary to cover the £9,600 needed to pay the school fees, it would probably need to pay you an extra Gross Salary equivalent of up to £13,000 - £14,000 in order for you to get £9,600 into your hand. This would effectively reduce the Corporation Tax liability (by depressing the company profitability) but would increase the company's Employer's NI and your personal Income Tax and Employee's NI.
Maybe your accountant was right after all - it does all get rather complicated.
A lot of odd-ball areas of taxation are actually due to the misalignment and different treatments of amounts for personal Income Tax and National Insurance purposes.
If the company simply paid you additional salary to cover the school fees, the company would end up paying a certain level of Corporation Tax and Employer's NIC and you personally would pay PAYE and Employee's NIC on the school fee amount.
If the company paid the school fees directly, the Corporation Tax would be essentially the same as would the Employer's NI contribution. However, YOU would pay less personally to the Revenue because the school fees amount would only be subject to PAYE and not the Employee's NI contribution.
This is a rather simplified explanation as there are some further complications in that, if the company was paying you additional salary to cover the £9,600 needed to pay the school fees, it would probably need to pay you an extra Gross Salary equivalent of up to £13,000 - £14,000 in order for you to get £9,600 into your hand. This would effectively reduce the Corporation Tax liability (by depressing the company profitability) but would increase the company's Employer's NI and your personal Income Tax and Employee's NI.
Maybe your accountant was right after all - it does all get rather complicated
.A lot of odd-ball areas of taxation are actually due to the misalignment and different treatments of amounts for personal Income Tax and National Insurance purposes.
It IS a business expense in the sense that it is part of a remuneration package to one of its directors/employees.
As long as the correct PAYE and NI amounts are calculated and paid over to the Revenue within the stipulated time limits, and the details of the package are properly disclosed in the accounts as required by Company Law, Corporation Tax rules and accounting guidelines, the expense should be fully allowable for Corporation Tax purposes.
"Staff Wages" and Directors' Remuneration" are allowable expenses, aren't they. "Directors' Remuneration" also would also include "non-cash" elements of the "remuneration package".
As long as the correct PAYE and NI amounts are calculated and paid over to the Revenue within the stipulated time limits, and the details of the package are properly disclosed in the accounts as required by Company Law, Corporation Tax rules and accounting guidelines, the expense should be fully allowable for Corporation Tax purposes.
"Staff Wages" and Directors' Remuneration" are allowable expenses, aren't they. "Directors' Remuneration" also would also include "non-cash" elements of the "remuneration package".
Employee's NI is not calculated on Benefits in Kind (generally speaking).
Employer's NI and Income Tax IS calculated on Benefits in Kind. Income Tax is usually collected through the PAYE system and is usually collected by adjusting the following year's PAYE Coding for the individual.
The main exception is Benefits in Kind on cars which should be adjusted within the year any changes to the Benefit in Kind occurs. There is a special form for this (called a P46 Car) which allows the Revenue to correct car benefits in the year in which corrections are required. Most other benefits tend to get corrected the year after.
Employer's NI and Income Tax IS calculated on Benefits in Kind. Income Tax is usually collected through the PAYE system and is usually collected by adjusting the following year's PAYE Coding for the individual.
The main exception is Benefits in Kind on cars which should be adjusted within the year any changes to the Benefit in Kind occurs. There is a special form for this (called a P46 Car) which allows the Revenue to correct car benefits in the year in which corrections are required. Most other benefits tend to get corrected the year after.
wattsm666 said:
Would you get a CT deduction as it is not wholly and exclusively for the purposes of the trade?
But it is - it's part of the employment costs of the business. It's just another permutation of the "employee/director salaries".Edited by Eric Mc on Thursday 18th September 13:08
Gassing Station | Business | Top of Page | What's New | My Stuff