We get asked alot if its possible to pay school fees ( and alot ofother items !) out of a Limited Company that you are a shareholder anddirector of.
In a word the answer is yes !
But its a question of whether you really want to, and the real answer, like all tax planning is not always that simple.
Firstly, if you are using a "low salary & high dividend" routethen you will not be able to do any better than you are. Dividends arethe most effective way of extracing money from your company into yourhands.
So that begs the question, when might you want to pay school fees from the company ?
The answer is that you would only want to do this as a replacement of salary or PAYE earnings.
Assuming that your had a minute of a company meeting approving the payments, and t
The Blevins Franks Guide To Running A Microbusiness is now in itssecond edition. With over 400 pages of information this e-book is auseful free guide to any Professional Contractor and Freelancer, HomeBusiness or Microbusiness.
Section5.18.13 for instance has a great list of 63 expenses that canbe claimed against corporation tax in a Limited Company, and thesections that follow go into detail for every expense.
Everything you legitimately claim will reduce your company tax bill,so the more you can claim compliantly, the more income you will enjoy.
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As we move into the pre-Christmas period, your mind may be onentertainment, the good old office party and Christmas gifts; but whatcan you claim through your business?
Entertainment
Entertainment is not an allowable expense that may be claimedagainst profit to reduce corporation tax. However, in somecircumstances, Input VAT may be reclaimed.
To determine what expenses may be deducted under the description of'entertainment' then a distinction needs to be made between businessand personal as different rules apply to each.
Business entertainment
To meet the criteria for business entertainment, the expense must have been:
Not provided to an employee of the business
Were provided free of charge to the recipient
Definition of an employee for the purpose of business entertainment
A person directly employed by the business
A director of the company
A person engaged in managing the company
A self-employed person working for the company who receives expenses inthe same manner as an employee of the company, i.e. subsistence payments
Helpers or stewards essential in running company events
Who are not my employees for business entertainment purposes?
Ex-employees
Retired employees
Shareholders
Expenses that are considered to be business entertainment
Provision of food and drink
Provision of accommodation
Theatre and concert tickets
Sporting events and facilities
Entrance to clubs and nightclubs
Use of capital assets such as aircrafts and yachts for entertaining
Input VAT on business entertainment
Input VAT is not reclaimable on business entertainment.
There are two exceptions where input VAT is reclaimable; Airlinesproviding food and accommodation to delayed passengers and sportingbodies providing food to guests.
If the director entertains clients when the director has worked alate shift this would be a combination of subsistence (for thedirector) and business entertainment for the clients. The input VAT onthe proportion of expense attributable to the director may be claimed,but not that of the clients.
Entertainment expenses for employees
Where entertainment has been provided to an employee that has beenprovided purely for business reasons, i.e. to improve morale or rewardthem for their hard work the employees were taken for a meal. Thepurpose of this meal was wholly for business purposes therefore theInput VAT is reclaimable but the expense is not allowable. If this'entertainment' had been open to all employees as a function thendifferent rules apply. Please see 'office Christmas party' below.
Any entertainment that had been provided to the employee (not opento all employees) that is above £50 in value in any one tax year isrequired to be declared as a benefit in kind on the employees P11 andclass 1a NICs will be charged.
Where the directors of a company incur entertainment expenses,neither, the Input VAT or the expense may be reclaimed because theexpense is considered entertainment, not a business expense.
Office Christmas party
Christmas and other office parties are an allowable expenseproviding that the social function is 'open' for all employees toattend.
A total of up to £150 may be claimed for each employee andnon-employee (spouse) annually. This may include the associated costsof providing the party such as transport to the venue, food andaccommodation.
This £150 is not an 'allowance' it is a ceiling limit for the actual cost.
Where there is more than one party per annum, so long as the totalcost per head does not exceed £150 (including all the associated costsof providing the party) then the expenses are allowable.
Example one:
Two functions were provided for all employees to attend. The firstfunction cost £90 per person and the second cost £45 per person. Bothfunctions may be claimed. No benefits in kind are incurred by theemployee.
Example Two:
Two functions were provided for all employees to attend. The firstfunction cost £85 per head and the second cost £75 per head. The totalcost of £160.
Only one of the function expenses may be claimed. Either one of themmay be claimed, but it would be more beneficial to claim the first onewhich incurred the greater expense.
The employee would incur a benefit in kind charge, tax and Class 1a NICS on the whole amount of £75.
If a function is provided and the cost is over £150 per head thenthe employee would be charged tax and Class 1a NICS on the whole amount.
From a VAT and corporation tax perspective, the total amount, evenover £150 may be claimed because the function is not classed asentertainment.
The £150 ceiling limit relates to whether a charge of tax and Class 1 A NICS will be applied under the benefits in kind rules.
Business Gifts
Where a gift has been made wholly for business purposes to a client(and the gift clearly shows advertising for the business giving thegift) then it is an allowable expense and the Input VAT may bereclaimed on the cost of the gift if the total cost is £50 or below ina 12 month period and provided that they are not successive gifts (morethan one to the same individual). Gifts of food, drink, tobacco, andvouchers that are exchangeable for goods are excluded.
Seasonal Gifts
An employer may provide employees with a seasonal gift, such as aturkey, an ordinary bottle of wine or a box of chocolates at Christmas.All of these gifts are considered to be trivialand as such are not taxable. For an employer with a large number ofemployees the total cost of providing a gift to each employee may beconsiderable, but where the gift to each employee is a trivial benefit,this principle applies regardless of the total cost to the employer andthe number of employees concerned.
If the gift extends beyond one of the items mentioned above, forexample from a bottle or two to a case of wine, or from a turkey to aChristmas hamper, you will need to consider the contents and costbefore being able to determine whether the benefit is trivial.
This is an extract from the Blevins Franks Guide to Running a Micro Business e-book. You can download this free of charge from our website. Simply log in or register if you have not done so previously, go to Business Library, Tax Documents and Tools, Blevins Franks Guide to Running a Micro Business pdf document Version Oct 2008.
We are frequently asked by clients what types of BusinessEntertainment Expenses can be claimed as a tax deduction againstcorporation tax through the profit and loss account of their limitedcompany.
To clarify this issue:
Business Entertainment is not an allowable expense that may be claimed against profit to reduce corporation tax.
However, in some circumstances, Input VAT may be reclaimed.
To determine what expenses may be deducted under the description of'entertainment' then a distinction needs to be made between businessand personal as different rules apply to each.
Business entertainment:
To meet the criteria for business entertainment, the expense must have been:
Not provided to an employee of the business
Were provided free of charge to the recipient
Definition of an employee for the purpose of business entertainment
A person directly employed by the business
A director of the company
A person engaged in managing the company
A self-employed person working for the company who receives expenses inthe same manner as an employee of the company, i.e. subsistence payments
Helpers or stewards essential in running company events
Who are not my employees for business entertainment purposes?
Ex-employees
Retired employees
Shareholders
Expenses that are considered to be business entertainment
Provision of food and drink
Provision of accommodation
Theatre and concert tickets
Sporting events and facilities
Entrance to clubs and nightclubs
Use of capital assets such as aircrafts and yachts for entertaining
Input VAT on business entertainment
Input VAT is not reclaimable on business entertainment.
There are two exceptions where input VAT is reclaimable; Airlinesproviding food and accommodation to delayed passengers and sportingbodies providing food to guests.
If the director entertains clients when the director has worked alate shift this would be a combination of subsistence (for thedirector) and business entertainment expenses for the clients. Theinput VAT on the proportion of expense attributable to the director maybe claimed, but not that of the clients.
Entertainment expenses for employees
Where entertainment has been provided to an employee that has beenprovided purely for business reasons, i.e. to improve morale or rewardthem for their hard work the employees were taken for a meal. Thepurpose of this meal was wholly for business purposes therefore theInput VAT is reclaimable but the expense is not allowable. If this'entertainment' had been open to all employees as a function thendifferent rules apply.
Any entertainment that had been provided to the employee (not opento all employees) that is above £50 in value in any one tax year isrequired to be declared as a benefit in kind on the employees P11 andclass 1a NICs will be charged.
Where the directors of a company incur entertainment expenses,neither, the Input VAT or the expense may be reclaimed because theexpense is considered entertainment, not a business expense.
If you are a client and would like advice on what expenses you mayclaim please contact your Personal Accountant. If you are not, pleasefeel welcome to book a free initial consultation.
We have published an e-book 'The Blevins Franks guide to running aMicro Business which you may download free of charge from our website.This e-booked is packed full of information on setting up the rightbusiness structure from the start, running it in a compliant mannertogether with all the necessary legislation you need to know.