If you are the owner of a limited company, there are several ways that you can use your business to pay for your children’s independent school fees. The main strategies are discussed in this article. However, we strongly recommend speaking to a school fees planning specialist – such as SFIA – before drawing down money from your business for educational expenses.
1) Dividends From Child-Owned Shares
One of the easiest and most tax efficient ways of paying school fees through your business is by assigning shares in your company to your children via grandparents, other relatives or a trusted friend.* In this way school fees can covered by dividend payments made to the child. So long as dividend payments don’t exceed £14,500 per annum for each child, payments are tax-free (although you will still need to pay corporation tax on the income at source).
*If gifted directly by the parents then payments will be taxed at the parents marginal rate.
2) As Part Of Your Remuneration Package
For convenience, school fees payments can be factored into your remuneration package, and either paid to you or to the school directly. These payments are normally taxable at your standard rate. You can either process the payments through your monthly payroll, or make benefits payments outside the payroll and report them on your annual P 11 (D) return. Non-payroll benefits will also need to be reported through your personal tax return.
3) Employer Childcare Voucher Schemes
If your company joined a childcare voucher scheme before 4th October 2018, you can still make salary sacrifices towards childcare vouchers, and the sums are not liable for tax or NI payments. These vouchers can only be used for childcare, and not school fees.
However, some independent schools except childcare vouchers to cover the cost of prep school and nursery fees for children under five. Childcare vouchers can also be used for out of hours care and after-school clubs for older children at independent schools, so long as the school is registered, and your invoice shows after-school activities separate from educational fees.
4) Employer Scholarship Scheme
Your business can provide financial scholarships, grants, or bursaries to pupils attending independent schools, including your own children. These disbursements are generally tax-free and don’t count towards the child’s personal tax allowance, so can be used in conjunction with share dividend payments to cover school fees.
5) Directors Loan Account
You can make school fees payments direct from your business by using your directors loan account. These loans are repaid through share dividends and payroll income by deducting the loaned amounts from your take-home pay. We recommend that the directors loan account balance is cleared at the end of each accounting year – i.e. so that you don’t owe the business money – to avoid tax penalties.
What Next?
The most effective way of spreading the cost of independent school fees, and of avoiding unnecessary costs, is to plan early and work alongside an experienced school fees planner. At SFIA we provide tailored advice and strategies for making the best of your assets and managing your school expenses. Contact us today to learn more.
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