ex Contractor - late income when in employment question

[MPwannadecentincome]

Hi,

When I was contracting I did whatever I could to maximise my income despite being "umbrella employed".

In 2009 I entered into an agreement to introduce Company B to Company C. Neither company was my "employer" or "client" at the time.

If the result of said introduction produces any revenue for Company B then I am paid 2.5% commission from the year 1 revenues arising and 1.25% in year 2. Company B is based in Bulgaria and will pay the commission in Euros (being the currency of its separate contract with Company C).

In 2011 Company B finally enters into a commercial relationship with Company C thus triggering my entitlement to payments out of 20,000 Euros per month of revenue. These are to be paid as Company B receives revenue from Company C. I elected to take this payment quarterly to minimise bank charges on payments on relatively small amounts.

Since 2010 I had resigned their freelancing work under the Umbrella Company and became a full time employee of a different unrelated business. Special terms were negotiated with the new employer to allow continuation of the terms of the contract with Company B - normal employment terms forbid any commercial relationships with other companies. I am higher rate tax payer and with bonus payments and this additional income is likely to push total taxable earnings above £100,000 per annum.

Question:

I am now ready to raise invoices for my commission payments which will be quarterly until end of 2013. The question is how should I treat the income for Self Assessment purposes and also for National Insurance?

Given the tax situation it might seem efficient to put the income into a pension policy, however as I have credit card debts of £47,000 their preference is to repay the debts as much as possible.

BTW I tried phoning up HMRC up and they could not answer on the phone, saying I had to write to them so a technical advisor can look at it.

Many thanks for any advice!

PS pls don't ask me why the credit card debts are so big, that is another longer story to do with a failed marriage relationship.

[yasockie]

You should set up a Ltd company for that purpose alone (and some future ones that you can think of). The money will be in company coffers and you will have to pay corporation tax on most of it, unless you can justify expenses.

In your current situation it doesn't seem attractive to pay yourself salary or dividends, so you probably can get away with a Director's loan of ca 5k which should at least cover the interest on the credit cards and if you're getting more than that per annum, simply retain that in the Ltd until you're in the lower tax band or gather a lump sum and use entrepreneurial relief to dissolve the company.

[MPwannadecentincome]

thanks for the quick reply

You should set up a Ltd company for that purpose alone (and some future ones that you can think of). The money will be in company coffers and you will have to pay corporation tax on most of it, unless you can justify expenses.

In your current situation it doesn't seem attractive to pay yourself salary or dividends, so you probably can get away with a Director's loan of ca 5k which should at least cover the interest on the credit cards and if you're getting more than that per annum, simply retain that in the Ltd until you're in the lower tax band or gather a lump sum and use entrepreneurial relief to dissolve the company.

OK I will look into that, I had thought that the amounts involved might be too small to make this worthwhile, particularly as opportunities for future introductions are very limited, expenses are non-existent except accountancy fees and keeping the LtdCo going without much activity might mean large overheads eating into the limited income- a total of approx £7,5000 at current exchange rates for the 2 years.

I also have to look into the contract - I don't think it can be re-assigned, so would have to be signed again after the LtdCo is setup?

My wife is thinking of starting her own business but doesn't want to do Ltd so no help there. Hmmm my brother in law has a Ltd Co, I will have to see if that helps.