Tax question: Company paying school fees

readerreader Experienced MentorMAAT, AAT Licensed Accountant Posts: 1,038
I've just read part of the latest edition of the AAT magazine and Michael Steed (I can't seem to escape this guy, I've seen him at AAT branch meetings, ATT CPD events, Youtube..............) writes the following:

".....if the school were to contract directly with the company, with no recourse to the director for non-payment, this is a benefit that is not subject to class 1 NICs (where both the employer and the employee pay), but this is instead subject to class 1A NICs, where only the employer pays, so there's a [tax] saving for the director personally." Page 9, Accounting Technician, January/February 2013

So imagine we have a one man band ltd company and that ltd company pays for the director's children's school fees (and P11D duly completed for the cost) can someone explain how this would result in a tax saving (compared to taking the equivalent dividends, for example) given that:

1) The company would have to pay class 1A NIC @ 13.8% on the cost of the school fees.

2) The cost of the school fees would have to be declared on the director's personal tax return probably resulting in him paying income tax on this @ 20% (at least).

3) And I'm assuming the cost of the school fees would not be an allowable deduction against the company's corporation tax.

Comments

  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    That's not what he is saying.

    He is saying that if the contract can be between company and school, rather than director and school (which in itself is highly unlikely in my opinion) then rather than being taxed via the payroll as settling the pecuniary liability of the director, it will be taxed as a benefit in kind. Hence only employers NIC rather than both employees NIC and employers NIC.

    This is for your salaried director, not your one-man-band director/shareholder.

    In answer to your third point it is an allowable deduction for the company just as any other form of salary/benefit.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038
    That's not what he is saying.

    He is saying that if the contract can be between company and school, rather than director and school (which in itself is highly unlikely in my opinion) then rather than being taxed via the payroll as settling the pecuniary liability of the director, it will be taxed as a benefit in kind. Hence only employers NIC rather than both employees NIC and employers NIC.

    This is for your salaried director, not your one-man-band director/shareholder.

    In answer to your third point it is an allowable deduction for the company just as any other form of salary/benefit.

    That makes sense- thanks
  • BIG WALBIG WAL Well-Known Registered Posts: 133
    I do wages for a Religous charity. The minister's salary is reduced to take account of private education for his kids. Thecharity is billed directly by the school. It goes on his P11D, so he saves paying the Employee NI.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038
    BIG WAL wrote: »
    I do wages for a Religous charity. The minister's salary is reduced to take account of private education for his kids. Thecharity is billed directly by the school. It goes on his P11D, so he saves paying the Employee NI.

    Just out of interest, does the charity pay corporation tax or has the charity been given exemption from corporation tax by HMRC.

    Thanks
  • BIG WALBIG WAL Well-Known Registered Posts: 133
    No tax is paid as it's a not-for-profit charity - and is not incorporated.
  • FireraiserFireraiser Feels At Home Registered Posts: 91
    This is for your salaried director, not your one-man-band director/shareholder.

    Do you mean it's not allowable for a one-man band director/shareholder or that there are better alternatives for them?
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038
    BIG WAL wrote: »
    No tax is paid as it's a not-for-profit charity - and is not incorporated.

    Thanks
  • StephanieStephanie Settling In Nicely Registered Posts: 20
    Company paying school fees

    Please can someone help out there about company paying school fees?
    A client approaches me recently asking if he's company could pay his kids school fees?
    He is a sole trader and had kids in private school.
    Your advice in this matter will be much appreciated.
    Thank you.
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,069
    A sole trader does not have a company.

    This thread relates to limited companies, which is an entirely different matter.

    In short: no, sorry.
Sign In or Register to comment.