Paying tuition fees without paying tax


C

Chris Plumber

Can anyone give a financial lamer some basic advise.. My son is going to
start university in approx 1 1/2 years. I currently make a little "extra
cash" from a small web site (not a registered business - more of a hobby).
The money comes in the form of quarterly cheques from the internet book shop
"Amazon.com".

I'd like to be able to arrange that these funds are paid directly to my son
while he as at University so that I dont have to pay 40% tax on them first.

The question is - does the UK tax system allow me claim that the money is
not mine if I arrange for the cheques to be paid directly to my son? Or is
there some better way of obtaining the same result by other means.
 
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T

Tumbleweed

Chris Plumber said:
Can anyone give a financial lamer some basic advise.. My son is going to
start university in approx 1 1/2 years. I currently make a little "extra
cash" from a small web site (not a registered business - more of a hobby).
The money comes in the form of quarterly cheques from the internet book shop
"Amazon.com".

I'd like to be able to arrange that these funds are paid directly to my son
while he as at University so that I dont have to pay 40% tax on them first.

The question is - does the UK tax system allow me claim that the money is
not mine if I arrange for the cheques to be paid directly to my son? Or is
there some better way of obtaining the same result by other means.
Why not change the business (or the setup at amazon or whatever) so its all
in your sons name (not _just_ the cheques), and the cheques are directly
paid to him?
 
A

Alec

Chris Plumber said:
Can anyone give a financial lamer some basic advise.. My son is going to
start university in approx 1 1/2 years. I currently make a little "extra
cash" from a small web site (not a registered business - more of a hobby).
The money comes in the form of quarterly cheques from the internet book shop
"Amazon.com".

I'd like to be able to arrange that these funds are paid directly to my son
while he as at University so that I dont have to pay 40% tax on them first.

The question is - does the UK tax system allow me claim that the money is
not mine if I arrange for the cheques to be paid directly to my son? Or is
there some better way of obtaining the same result by other means.
Your income from an affiliated website is still yours, no matter whom you
pay the cheque into. You cannot escape income tax by diverting it in this
way. In the past you could take out a deed of covenant for your son to save
tax, but this has been abolished.
Is there any way in which you could pass your 'business' to your son? Or to
your wife, if she is non-tax paper or on standard rate?

Alec
 
R

Ronald Raygun

Alec said:
Your income from an affiliated website is still yours, no matter whom you
pay the cheque into. You cannot escape income tax by diverting it in this
way. In the past you could take out a deed of covenant for your son to
save tax, but this has been abolished.
Is there any way in which you could pass your 'business' to your son? Or
to your wife, if she is non-tax paper or on standard rate?
Surely they could gift the beneficial interest in the business to
their son. Then all income from it would be his, and taxed as his.
 
M

Mogga

Can anyone give a financial lamer some basic advise.. My son is going to
start university in approx 1 1/2 years. I currently make a little "extra
cash" from a small web site (not a registered business - more of a hobby).
The money comes in the form of quarterly cheques from the internet book shop
"Amazon.com".
a hobby?
does it still count at being self employed?
 
D

Doug Ramage

Surely they could gift the beneficial interest in the business to
their son. Then all income from it would be his, and taxed as his.
Could be CGT implications.

And if he is under 18, it could ineffective for income tax purposes.

Wife as a partner in the business?
 
R

Ronald Raygun

Doug said:
Could be CGT implications.
In general yes, but unlikely in this instance, as it appears to be
an essentially capital-free business.
And if he is under 18, it could ineffective for income tax purposes.
Indeed, but unless he's one of those prodigies who go straight from
nappies to university, that won't be an issue. The OP implied that
the arrangement would not be put in place until he starts.
 
J

John-Smith

Is it a limited company? If so, make your son a shareholder and pay
him a dividend.

And/Or make him do some work and pay him a salary - below 4k p.a.
there will be no NIC.

Children should earn the costs of their education if this can be
arranged - what's the point in the parent paying 40% tax whent he
child's personal allowance is wasted?
 
T

tim

Mogga said:
a hobby?
does it still count at being self employed?
yes,

But in gereral, the IR turn a blind eye as they know that the people
who do 'hobby' jobs don't know of all the expenses that they can
claim against the income.

If pushed to find out, it is quite likely that the 'hobby' job will actually
make a loss and should the enterprice ever become fully commercial
this loss can be offset against tax and the IR will be in nett loss.

Note that as it's a 'hobby' job, a request to offset any loss against
employed income will be refused so that point is moot.

tim
 
C

Chris Plumber

Tumbleweed said:
Why not change the business (or the setup at amazon or whatever) so its all
in your sons name (not _just_ the cheques), and the cheques are directly
paid to him?
That's more or less what I thought of doing, but someone told me that it
wouldnt work because the IR would say that since I set the site up myself
and my son is a dependant - that it would be hard to argue the point.
 
C

Chris Plumber

Doug Ramage said:
money


Could be CGT implications.

And if he is under 18, it could ineffective for income tax purposes.

Wife as a partner in the business?
I dont run it as a "business" in any formal sense. Would there be advantages
in doing so?

Also: My son isnt 18 yet but will be by the time he goes to university.
 
C

Chris Plumber

John-Smith said:
Is it a limited company? If so, make your son a shareholder and pay
him a dividend.
No - not a company at all. Just a few page on a web server (minimal
capital - if any).
And/Or make him do some work and pay him a salary - below 4k p.a.
there will be no NIC.
Children should earn the costs of their education if this can be
arranged - what's the point in the parent paying 40% tax whent he
child's personal allowance is wasted?
Exactly my thoughts! But the question is how BEST to do this. Maybe I need
to look into the idea of turning into a limited company - but (I'm a total
novice here) I guess that this option is not total devoid of costs.
 
T

Tumbleweed

Chris Plumber said:
book

No - not a company at all. Just a few page on a web server (minimal
capital - if any).



Exactly my thoughts! But the question is how BEST to do this. Maybe I need
to look into the idea of turning into a limited company - but (I'm a total
novice here) I guess that this option is not total devoid of costs.
No, just put everything in it into his name, as if its him doing it, not
you.

As this is effectively a hobby for you (it would appear) I wonder if you
have to declare your income in this respect? Does anyone know what the rules
are on hobbies, or are you meant to declare all income however small? For
sake of argument, If I sold 1/2 my stamp collection for £100, do I have to
declare that?
 
T

Tumbleweed

Chris Plumber said:
Or
That's more or less what I thought of doing, but someone told me that it
wouldnt work because the IR would say that since I set the site up myself
and my son is a dependant - that it would be hard to argue the point.
How are they going to know?! Lets say you have decided to stop doing it from
now on, and your son has decided to start, carrying on from where you left
off.
 
D

Doug Ramage

As this is effectively a hobby for you (it would appear) I wonder if you
have to declare your income in this respect? Does anyone know what the rules
are on hobbies, or are you meant to declare all income however small? For
sake of argument, If I sold 1/2 my stamp collection for £100, do I have to
declare that?
The usual IR "rule" is that hobbies which make losses are not trades and
thus no relief due, and hobbies which make profits are taxable. :)

It would likely be a CGT item - unless you were in the habit of buying &
selling stamp collections.
 
D

Doug Ramage

Chris Plumber said:
son?

I dont run it as a "business" in any formal sense. Would there be advantages
in doing so?

Also: My son isnt 18 yet but will be by the time he goes to university.
If it is making money on a regular basis, you may need to formalise this
activity, including registering self-employment with the IR, if
appropriate - £100 penalty for failure to do is.
 
R

Ronald Raygun

Doug said:
The usual IR "rule" is that hobbies which make losses are not trades and
thus no relief due, and hobbies which make profits are taxable. :)
What would be the treatment of "mixed" hobbies, i.e. those in which
some activities could conceivably be considered a trade because they
involve money changing hands, and other activities do not?

The example I have in mind is musicians, who mainly get together to
play in ensembles for their own enjoyment, in fact even joining clubs
which involve payment *by* them of subscriptions to defray costs,
but who occasionally get roped in to playing in low-budget productions
which cannot afford to hire proper professional musicians. They get
paid fees and expenses.

The question is, would this hobby activity be split into earning
and non-earning parts, or would the whole lot be lumped together
such that all the expenses involved in the non-earning part could
offset fees from the earning part?
 
S

Stephen Burke

Ronald Raygun said:
The question is, would this hobby activity be split into earning
and non-earning parts, or would the whole lot be lumped together
such that all the expenses involved in the non-earning part could
offset fees from the earning part?
AFAIK you can only offset expenses which are necessary to make the profits,
so you'd have to convince the IR that paying a subscription to a club was
necessary to develop their skill, or something like that.
 
R

Ronald Raygun

Stephen said:
AFAIK you can only offset expenses which are necessary to make the
profits, so you'd have to convince the IR that paying a subscription to a
club was necessary to develop their skill, or something like that.
Well, with musicians, the skills need input of effort just to
stay in one place, never mind developing them, so it could indeed
be argued that taking part in such club activities is instrumental
(sorry) in keeping one's standard up to scratch, and that therefore
the expenses involved (subcriptions, travel) can arguably be judged
necessary to make the profits. Also, being seen there also contributes
to the likelihood of being asked to take part in paying gigs.

I was also thinking of common expenses affecting both the unpaid and
paid proportions of the whole activity, such as consumables (strings,
reeds, valve oil), insurance and overhauls of instruments, and of
course capital allowances for the cost of their acquisition. These
costs tend to add up to more than mere club subscriptions.
 
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T

Timothy Lee

Stephen Burke said:
AFAIK you can only offset expenses which are necessary to make the profits,
so you'd have to convince the IR that paying a subscription to a club was
necessary to develop their skill, or something like that.
As, amongst other things, a church organist, I fill out the mini-self-
employed self assessment section for that, where I put in a turnover
figure, an expenses figure and a profit figure. This is for about £1,500
per year.
 

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