Does this look dodgy?

divvy600

Heres any interesting scenario which is completely hypothetical

A large private/semi state/civil service organisation sets up a staff creche.

The creche was formed as a seperate company using an interest free setup loan of 80k from the large organisation. The creche has two directors, who are also on the board of the main organisation.

However, the creche denies they are part of the organisation. They claim they are a seperate entity.

So lets say the creche was closed to outside children, and was only open to staff of the large organisation The staff could be charged, 30 euro a day.

The creche is accruing annual losses, guaranteed by the organisation, at a rate of 30 to 40k per annum, on an interest free loan repayable basis, (if that ever happens) but with debts of 300k after seven years, and rising year on year by 30 - 40k, could it be described that the creche was undercharging for its services, to avoid Benefit in Kind taxation for the company staff.


Who would be concerned parties to this carry on? Revenue? Gardai? Fraud squad?

Any opinions on this would be grateful as I have always wondered.

Thank you.

nompere

It's exempt from tax under S.120A Taxes Consolidation Act 1997.

pigeonbutler

Nompere is correct that it's exempt from BIK so that's not the issue.

The rest of the structure could provide problems for the company though. Firstly who owns the 1 share or whatever it is in the company? Is it the parent entity? If so the results would be consolidated in their accounts.

The creche company must have a legal guarantee of funding or something or otherwise it couldn't continue accounting on going concern basis.

The write-off of loans and/or payment of Creche company expenses by the large organisation may not be deductible for Corporation Tax purposes as they aren't costs of their trade (or even the wider group given the angle they seem to be trying to take of indicating it operates at arms length).

Given that BIK isn't an issue I don't see the tax advantage to be garnered from a structure like you've described. Perhaps it's for the purposes of limiting liability in the event of litigation? Even so, I wouldn't have thought it would be great for employee morale if they used the shield of limited liability to avoid a large legal settlement in the event of something going very wrong. Surely insurance against public liability is critical in the childcare business.

namenotavailablE

Just want to check something (not strictly related to the original query-apologies)

Is employer-provided childcare still exempt from BIK? On pg 7 of this document, it appeared to be a relief which was abolished.
Can someone clarify whether the BIK exemption still applies or did the Finance Act abolish the exemption?