Paying private school fees via Ltd Company
AngelaCam
Member
Does anyone know if it's possible (tax efficiently) to pay private school fees via a Ltd Company? My client runs her own business and her and her husband are the only shareholders. Currently they pay school fees from post tax income.
I think if the Ltd Company pays the school fees direct they would not be a tax deductible expense for Corporation Tax (not even sure if the Ltd Company could pay direct to be honest!).
Could shares be gifted to the children and then dividends be paid to them to use their personal allowances?
Comments
The payment to the school by the company would be treated as earned income so subject to income tax and NIC for employer and director.
In theory a share class for the child could be created and a div paid to them (well direct to school). The share would be held by parent under a bare trust.
As the child is a minor I think that this would fall under parental settlement (or anti avoidance) and be taxed as a div income in hands of parent - the directors.
Whichever way you look at it, any payment from the company to pay school fees for a director is going to get taxed as income in the hands of the director.
If this wasn't the case, we’d all be doing this quite often.
(V happy if someone can show a way this can be done and makes use of child tax allowances.)
Thanks Richard!
This has been in the news recently and HMRC are investigating. The scheme promoted by a number of tax advisers (doesn't) work where Mr A creates a new B share class in his company, which only contain rights to special dividends. Mr A sells the 1 B share to his sister, Mrs B for a nominal amount, say £1,000. Mrs B then gifts the shares to a bare trust for the benefit of Mr A's children. The board votes for a special dividend of £100,000 which is paid to the children and used to meet school fees.
Absurd that this has been promoted. Even if the shares were sold for something approaching their real value (which could be £millions given the potential cash flow) it would surely still be flawed.
Given HMRC are investigating this type of scheme, I suspect anything that looks or feels remotely similar would be looked at so best avoided!