Starbucks – CofFees: employees’ tuition costs and tax implications
It’s reported that Starbucks is to offer to pay tuition fees for its staff to take online degree courses offered by Arizona State University, in anything from information technology to political science, or even accountancy. (But not, apparently, law: your barista is unlikely to be a barrister.)
So what are the tax implications for an employer who pays tuition costs of an employee?
Normally, the costs should, like other employment costs, be tax-deductible for the employer (assuming, of course, that the employer pays tax, as Starbucks now claims to do). But this doesn’t mean that a family business could get away with charging against profits the tuition fees of the owner’s children: it’s very unlikely that the costs would be incurred “wholly and exclusively” for the purposes of the business.
For the employee, there is a special exemption from tax for scholarship income. But it applies only to full-time education, so won’t be relevant to the part-time study that Starbucks is sponsoring. And note that that exemption applies only to the student: where an employer provides scholarships to children of its employees or directors, there will often be a charge to tax on the employee or director unless certain conditions are met.
Otherwise, exemption is available only in respect of “work-related training”. That is fairly generously defined as anything designed to “impart, instil, improve or reinforce any knowledge, skills or personal qualities” which are likely to prove useful to the employee or make him or her better qualified to perform the duties of the employment, thus covering those corporate awaydays with their team-building exercises in constructing nuclear power stations out of Lego and the like. And it also extends to training aimed at facilitating participation in charitable or voluntary activities performed in association with the employment.
So, while, for example, a course in verbal and non-verbal communications or customer service given to employees in a customer-facing role would fall within the exemption, the sort of wider education envisaged by Starbucks would not, and its provision will constitute a benefit taxable on the employees profiting from it. However, it should be possible for Starbucks to settle the cost directly with HMRC by entering into a PAYE Settlement Agreement.
For more information, please get in touch with your usual BKL contact or use our enquiry form.
We’re delighted that our BrassTax author David Whiscombe has been shortlisted in this year’s Taxation Awards for his Outstanding Contribution to Taxation. Voting is open here to all tax professionals until 25 April.