Contractors' Questions: Can my 'Ltd' pay the course fee?

Contractor’s Question: Is there a tax-friendly way that my limited company, of which I am the sole director, could pay for the remaining half of a university course for a member of my family? As the institution providing the course is a registered charity, I thought that tax relief or a rebate might be available. I could appoint the member of my family who is taking the course as an employee of my company, assuming that would make the payment allowable?

Expert’s Answer: You refer specifically to the limited company paying for the course fees. The legislation in this respect is rather unusual because it is worded in a negative way in that businesses ‘cannot have an allowance for disbursements or expenses which are not money wholly and exclusively laid out or expended for the purposes of the trade.’ You will spot the double negative but, from a positive point of view, you would have to persuade HM Revenue & Customs that the expenditure is wholly and exclusively laid out or expended for the purpose of the trade. In your circumstances, I cannot see how this could be achieved.

If the family member in question was taken on as an employee of your company it would be seen as a flag-waving exercise by HMRC. There would have to be a genuine employment and then the expense would have to be expended for the purpose of the trade.

This brings us to the general rule regarding training courses: Acquiring a qualification can be viewed as a capital expense - whereas maintaining knowledge would be a revenue expense. As you are seeking an allowance against income, a capital expense would not qualify, unless it were plant/machinery; which it isn't.

In terms of obtaining tax relief in respect of donations to charitable institutions, those donations must be made under the Gift Aid scheme. However there is an overriding rule that the donation is exactly that -- in other words, there must be no benefit obtained from the donation.

The expert was Bob, the retired tax inspector.