It is not unusual to see company directors “employing” their children (or other family members) in the company whilst they are at university or college. The children are usually paid under the personal tax allowance limit or under the scholarship threshold so that no tax liability actually arises on the income.
On the face of it, it is a tax efficient way of funding the children through university or college.
In a recent case the First Tier Tribunal found in favour of Her Majesty Revenue & Customs and decided that the “wages” of the children were to be regarded as scholarship income and therefore not employment income of the recipients. The payments were a taxable benefit in kind in the hands of the Director as they were paid by reason of his employment to a member of his family or household. Class 1A National Insurance Contributions were also payable by the company on the benefit in kind.
Find out more from Booth Ainsworth –
Dawn Foden-Smith | Tax Team – Email Dawn
Phone: 0161 475 1532
Peter Williams | Tax Team – Email Peter
Phone: 0161 475 1582