Tax efficient way of receiving one off payment
Discussion
Legitimate options are limited although even these days there will I'm sure be no shortage of dodgy offshore operators who will claim to get you 90% income tax free. None of these work, though, and HMRC are very hot on those anyway.
The simplest and most above-board would include stuffing the pension (potentially up to £40k pa, depending, but of course you are then taxed on the way out) and splitting the income over multiple tax years, to avoid going over the various tax bands, again depending on how much other income there is and of course that also depends on getting the invoicing right.
But a lot will depend on the individual circumstances. How much is 'significant' and what other income does he have?
The simplest and most above-board would include stuffing the pension (potentially up to £40k pa, depending, but of course you are then taxed on the way out) and splitting the income over multiple tax years, to avoid going over the various tax bands, again depending on how much other income there is and of course that also depends on getting the invoicing right.
But a lot will depend on the individual circumstances. How much is 'significant' and what other income does he have?
What is the nature of the work?
Is he being paid on the basis of a single invoice or are there multiple invoices issued on specific separate dates?
It sounds to me that he has received or will receive some self employed consultancy income in a specific tax year. He will therefore have to return that income (even if it is a "one off") on a self assessment tax return. If he already completes tax returns, he can simply include the self employed income in the relevant "Supplementary Pages" when it is time to submit the return.
You say that he completed self assessment tax returns in the past but may have ceased doing so for a few years. If that is the case, he should submit a tax return to disclose this "one off" self employed income but use the Self Assessment tax reference he used in previous years. It is best not to apply to HMRC for a "new" self assessment tax reference if you already had one in the past (even if it has been dormant for a few years).
Is he being paid on the basis of a single invoice or are there multiple invoices issued on specific separate dates?
It sounds to me that he has received or will receive some self employed consultancy income in a specific tax year. He will therefore have to return that income (even if it is a "one off") on a self assessment tax return. If he already completes tax returns, he can simply include the self employed income in the relevant "Supplementary Pages" when it is time to submit the return.
You say that he completed self assessment tax returns in the past but may have ceased doing so for a few years. If that is the case, he should submit a tax return to disclose this "one off" self employed income but use the Self Assessment tax reference he used in previous years. It is best not to apply to HMRC for a "new" self assessment tax reference if you already had one in the past (even if it has been dormant for a few years).
Eric Mc said:
What is the nature of the work?
Is he being paid on the basis of a single invoice or are there multiple invoices issued on specific separate dates?
It sounds to me that he has received or will receive some self employed consultancy income in a specific tax year. He will therefore have to return that income (even if it is a "one off") on a self assessment tax return. If he already completes tax returns, he can simply include the self employed income in the relevant "Supplementary Pages" when it is time to submit the return.
You say that he completed self assessment tax returns in the past but may have ceased doing so for a few years. If that is the case, he should submit a tax return to disclose this "one off" self employed income but use the Self Assessment tax reference he used in previous years. It is best not to apply to HMRC for a "new" self assessment tax reference if you already had one in the past (even if it has been dormant for a few years).
It's planning consultancy over a number of sites for the same client. It's over £150k he's owed so my initial thought was to setup a LTD co and pay the corp tax. Is he being paid on the basis of a single invoice or are there multiple invoices issued on specific separate dates?
It sounds to me that he has received or will receive some self employed consultancy income in a specific tax year. He will therefore have to return that income (even if it is a "one off") on a self assessment tax return. If he already completes tax returns, he can simply include the self employed income in the relevant "Supplementary Pages" when it is time to submit the return.
You say that he completed self assessment tax returns in the past but may have ceased doing so for a few years. If that is the case, he should submit a tax return to disclose this "one off" self employed income but use the Self Assessment tax reference he used in previous years. It is best not to apply to HMRC for a "new" self assessment tax reference if you already had one in the past (even if it has been dormant for a few years).
Zoon said:
It's planning consultancy over a number of sites for the same client. It's over £150k he's owed so my initial thought was to setup a LTD co and pay the corp tax.
If the work was completed and invoices submitted prior to the LTD company existing then that isn't going to fly, plus a turnover of 150k means the LTD must be registered for VAT. He's going to be paying full income tax rates.Olivera said:
If the work was completed and invoices submitted prior to the LTD company existing then that isn't going to fly, plus a turnover of 150k means the LTD must be registered for VAT. He's going to be paying full income tax rates.
Accountants - when is the £150K regarded as income for VAT threshold purposes? When it's invoiced or when it's paid? It maybe that Joe Soletrader should have been VAT registered a while back... might he have to pay VAT on bills he hasn't added VAT to?Have any invoices been submitted?
If you knew that the value of the work you were planning to do was going to exceed £85,000 within 12 months of commencement, then you should have registered for VAT within 30 days of commencement of trade.
You cannot work with an entity as an individual for an extended period and then set up an intermediary (such as a limited company) at a later date.
What type of contract of engagement existed between the individual and the entity he was working for?
You cannot work with an entity as an individual for an extended period and then set up an intermediary (such as a limited company) at a later date.
What type of contract of engagement existed between the individual and the entity he was working for?
RudeBoy said:
If he’s retired does he still fill in a tax return?
If NO what’s to stop him banking it and hoping for the best?
The distinct possibility of getting caught - penalties, interest and a criminal conviction may be a problem.If NO what’s to stop him banking it and hoping for the best?
Look on the bright side, the average tax rate for 100,000 pounds of earned income was 71% in 1973. For every 100,000 earned, the government let you keep 29,000. If the 100,000 income was from investments, you got to keep just 14,500 pounds. Taxman Mr Wilson, taxman Mr Heath.
RudeBoy said:
If he’s retired does he still fill in a tax return?
If NO what’s to stop him banking it and hoping for the best?
Answer to question 1 - many, many retired people complete tax returns. In fact, being retired can often mean your affairs can get quite complicated (multiple pensions, part time employment, supplementary self employed income, cashing in of investments etc) and it is therefore necessary for retired individuals to complete self assessment returns, even if they hadn't previously.If NO what’s to stop him banking it and hoping for the best?
Answer question 2 - the law.
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