I've been offered a bonus!

[d000hg]

My client (the company owner specifically, it's a tiny firm) says he wants to give me a year-end bonus. Which is extremely kind but neither of us knows how he should do that in terms of tax, IR35, etc.

I'll ping the accountant but wondered if anyone else has had this situation and if so how you handled it?

I'm not even sure for a start if they should give it to my company, or to me since it is my services they are specifically wanting to say thankyou for... they're not UK based so the culture is different but I see it more as a thankyou/gift even.

Now obviously it would be very easy to hide it in an invoice - which he would happily do - but that doesn't seem proper; it's only fair HMRC get their 'bonus' too

[SuperLooper]

Add it to your next invoice as a "Completion Payment" or something.

[DolanContractorGroup]

Add it to your next invoice as a "Completion Payment" or something.

I agree with Superlooper, the word the term 'bonus' could flag up IR35 issues. HMRC is likely to see such bonuses as being evidence of the contractor actually being a disguised employee. If i was looking at a contract for IR35 purposes, I would let the client know to avoid that term. HMRC will still get their bonus in the form of Corporation tax.

[Craig@Clarity]

I'd suggest simply sticking it on your next invoice and use whatever term you think is appropriate avoiding the word bonus. You could even simply combine the figure into your usual item line of Consultancy Services. We're assuming it's a fair chunk for you to ask the question.

[WordIsBond]

I've had this several times with different non-UK clients. The first time, it really surprised me, now I'm used to it.

In the UK it would be a strong indicator for IR35, outside the UK not so much. But if you book it as a bonus, it could be used against you as an IR35 indicator by an HMRC bod who doesn't understand or care to understand how foreign cultures may differ.

I just add it as another line on the invoice, 'Supplementary payment (as agreed)'. The money goes to your company, and then you pass it through to yourself however you choose.

I'm not sure what you mean about HMRC getting their share, however. If the funds stay in YourCo as reserve, they get 19%, and more when you eventually disburse it. If you disburse it as dividends, they also get dividend tax. If you decide to treat it as a bonus to yourself and pay it immediately via payroll, they don't get any corporation tax but they get employer and employee NICs and income tax.

However you do it, HMRC gets their share. They ALWAYS get their share.

Assuming you are outside IR35, I probably would not pay it as a bonus right now. Otherwise, some HMRC person will say, 'It's obviously a bonus which means you are obviously an employee.' If you want to go ahead and pay it to yourself as a bonus, just make a bigger salary payment in March, or something. Don't call it a bonus, and if questioned you can just say you wanted to take more funds this tax year.

Edit: cross-posted with the guys above, sorry for the redundant comments.

[d000hg]

Thanks guys - seems this is not dodgy since it is then treated as normal income for taxation. I don't actually know the amount (maybe it's peanuts) - if it was more like a Christmas gift of £50 I might have suggested they email me an Amazon voucher
In fact a company we engage did that - I randomly got an email (as lead person on the project) with a £25 voucher code thanking me for my custom!

Who else gives their clients money here?!

[TestMangler]

Tell them it needs to be cash in the post......

[northernladuk]

Tell them it needs to be cash in the post......

Or put it in a brown envelope and stuff it through your letterbox.

[Old Greg]

Tell them it needs to be cash in the post......

Miscellaneous sundry income.

[Craig@Clarity]

Or put it in a brown envelope and stuff it through your letterbox.

Is the shifty back hand technique a lost art these days?!