Employer is offering to pay school fees for us…what are the implicatIons?

[Bigfatbaby]

The limited company that employs me is offering to pay school fees for my child, as an incentive to stay in the area given the limited choice of schools locally.

At present we have a moderately low income and receive help from tax credits. My employer has offered to either form a contract with the school and pay directly, or we approach the school as the customers and they pay them.

Ignoring whether or not this could cause issues if I leave as that is a decision to be taken later, presumably as a benefit in kind this would impact our taxable income and therefore our tax credits? Even though we don’t see the money itself? Which is fine and totally understandable if it is the case, I need to weight it all up as obviously better schooling would be a real benefit to the kids but we would still need to pay the bills etc.

I’ve tried looking online but my brain fries a little, does anyone have any pointers?

How many years of schooling left? Are you going to be stuck with this job just to make sure your child stays at that school?

And yes, that would be a taxable benefit

It would definitely be a BIK and they would most likely declare it as such on your payslip so you would be taxed via PAYE. Otherwise you would have to declare it end of year on your tax return.

It’s definitely a BIK, not sure how they are going to reconcile their accounts but it’s not your preference.
I wouldn’t agree to it though because it means if you leave your child has to change schools, plus if you have a low income how are you going to afford the extras?

This may help:

This is what I’m wondering, I tried to do the calculator but there wasn’t an option there to put the value, so presumably I just need to add the cost of the fees to my annual salary and use that figure?

There are a lot of facets to this I agree, but I’m just focusing on this element first I am starting with as much info as possible when weighing it all up.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim00590

“when the employer undertakes to pay remuneration free of income tax, that is without recovering it from the employee, there is further tax to be paid. Guidance is at EIM07700.“

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim07700

So… the employer will have to gross up the salary and pay the incurred tax for the employee.

And either way the school is paid there will really be no benefit different to an equivalent salary raise - the benefit to the employer if they pay is that they have more of a hold over the employee and the benefit to the employee if they pay is a higher salary on their CV.

I would expect Tax Credits to want to know about this and they would include it in the salary, but then of course it will be Universal Credit now anyway if it’s a new claim and UC before end of 2024 regardless.

Hopefully you are not higher rate taxpayer because you would end up stumping up the 40% difference). Even a lower rate tax payer will have to pay 20%. A bargain in terms of fees, but compare that with state school which is free.

The first thing that came to mind is golden handcuffs. You would not be able to move companies because the last thing you'd want to do is disrupt your children's schooling.

Why can't the company just pay you more salary in cash? Even if it is net-net the same for the company, the fact that they are structuring it this way means they keep your salary low (so if you tried to leave for another company, the uplift the other company is prepared to give is limited to your low base salary) and they can withdraw the benefit at any time unless it is written into your contract.

It is very odd.

It'll mean you have no option but to stay with the employer for the duration of your child's schooling.

What happens if you were made redundant?

Don't accept this offer. Tell them the money and flexibility will be more beneficial as a salary/contract increase

It is odd, which made me think it was either a knee jerk offer without any in depth thought, or there was some benefit to the company financially. I don't think the cost could be deducted for corporation tax purposes, so it won't be that.