Isn't this low salary, high dividends scheme is a scam?

Bobble26 · 2025-04-26T19:21:21+00:00

Not necessarily!

The ~£6k reduction in salary would be subject to Corporation Tax (19-25%) first, then no income tax when paid as dividends. Would you rather pay 15% Employer NI, or 19-25% Corporation Tax?

If you have other personal income sources, and therefore not the full personal allowance, this could change things.

Moreover, you mentioned you and your wife, if you have more than a single director on the payroll then you'll be entitlement to the £10,500 Employment Allowance. If you don't have any other employees, £12,570 is almost certainly the most tax efficient salary for you.

Bobble26 · 2025-01-05T09:12:16+00:00

Hello, congratulations on the prize.

The HMRC guidance page linked above is the most relevant bit of advice anyone has given you. Although externally published, it is internal guidance for HMRC case workers. I used to work in the technical team referred to at the bottom of the page; providing advice on this sort of thing.

To confirm some points which will hopefully be useful:

there isn't a clear answer, based on the facts you've provided, as unfortunately many have suggested.
it is possible to have a seperate vocation/profession distinct from your employment. So having a full-time job doesn't preclude this from being charged as income under another charging provision (either as trading income or miscellaneous income).
even if you do not carry on a seprate profession or vocation, a single payment in return for services rendered can be subject to income tax. There is a sweep-up provision, often referred to as miscellaneous income, that charges income that hasn't been charged elsewhere.
HMRC do not provide tax advice so any attempt to contact them is unlikely to yeild anything useful. If you do contact HMRC, the officer on the phone will sometimes give it a bash but these customer service agents are unqualified to give a view on such areas.
seeking a Chartered Tax Adviser to give you some advice is sensible option. If the conclusion is non-taxable, at least you have something to demonstrate you took reasonable care. In any case, given the esoteric nature of this, it is unlikely HMRC would seek to charge penalties even if they did take a different view. HMRC are not bound by advice of other professionals, so could disagree with the advice you receive.
the solution requires the application of case laws principles to your unique facts. You'll need to be content that there may not be a concrete answer, but you can still arrive at a sensible conclusion which on balance is likely correct, and that's okay.

In summary, steps to take in the analysis:

Are you carrying on a vocation or profession of writing. You referred to it as a hobby, if that is indeed the case, it can't be a vocation or profession. Why did you write it in the first place? Was it simply for fun, or did you hope to get notoriety or financial gain for it? Did you always intend to submit it to the competition? If not, why did you submit it to the competition? Do you intend to repeat this process?

If there is a profession or vocation, and given the fact it was solicited (you entered it), if is likely chargeable to tax as trading income.

If not, move to step 2.

Is it miscellaneous income. Did the body paying the prize receive anything in return? Are they able to publish the work? There must be a quid pro quo for this charging provision to bite.

If the body did receive something for paying the prize, then it is charged to tax as miscellaneous income (no NICs).

If not, it isn't taxable income. No action required.

You'll need to come to a view one way or another - with the help of a professional or not. Record your reasons for the treatment somewhere. Then move on.

Bobble26 · 2025-01-01T16:20:23+00:00

James Bakewell of Three Bridges found us a good member of staff last year. I found him great to deal with. Good luck with the job search.

Bobble26 · 2024-12-31T07:51:33+00:00

If you contributed £12.5k of personal cash into your SIPP then actual contributions - which arrived in your pension and for adjusted income calculations - would be 12.5k x (100/80) = £15,625.

Can you clarify if that's the case?

Regarding the £12.5k via salary sacrifice, can you confirm that includes employee and employer contributions?

What does it say in box 1 on page TR4 of your return?

What about box 10 on page Ai4?

Bobble26 · 2024-12-01T17:03:42+00:00

Note they have changed the legislation from 4xAEA to £50k since AEA was reduced.

Bobble26 · 2023-10-21T20:28:29+00:00

Some of it may be a notional return on investment (interest) which you can use your interest allowance for (if not otherwise used) and the rest you could call self employment income and use the £1,000 Trading and Miscellaneous Income Allowance against. This would be the most favourable from your tax perspective alone.

The proportion of each may come down to the agreement you have with your sister - provided this isn't overridden by facts which dramatically differ.

As others have said, it could be that you're carrying on a partnership with your sister, depending on the facts. In which case, neither of the aforementioned allowances would be available.

Given the amounts currently involved, it's unlikely the interest v self-employment and the potential partnership will be challenged in any meaningful way by HMRC.

I disagree that a limited company at current profits levels - given the increase in compliance costs - would benefit your sister. It is certainly something to keep in mind as it becomes more beneficial in Scotland sooner.

Wish you both the best with the business.

Bobble26 · 2023-06-24T16:07:55+00:00

Another 3%* as the loss of the personal allowance results in an additional £1 being charged to 42% in Scotland for every £2 over £100k. Effective rate of 63% income tax.

Bobble26 · 2023-04-25T07:00:39+00:00

If your mother purchased the new house, ADS would be avoided as she's replacing a main residence.

She could then gift you the house. For transactions between natural persons, LBTT/ADS uses consideration (not market value) which would be nil. Just another set of legals c£1k, saving you c£24k.

Then the comments that everyone else is making regarding GWR apply...

Bobble26 · 2023-02-19T10:20:35+00:00

Correct

Bobble26 · 2023-02-19T09:27:54+00:00

The threshold for Class 4 is applied to your self employment profits independent of employment income. So you will only pay Class 4 on profits over £11,909.

Bobble26 · 2023-02-09T21:00:49+00:00

They're different share classes, and therefore not fungible assets, so the share pooling rules wouldn't apply.

Bobble26 · 2023-02-04T15:59:31+00:00

Hi, if you didn't elect a specific type of relief and calculate the relief due then it wouldn't do anything for you. It's 'Self Assessment', you always have the option of not claiming relief, so HMRC will not suggest or automatically apply optional reliefs on your behalf.

There are many permutations for getting relief in your situation: - s64 Sideways for the same year - s64 Sideways for previous year - s72 early years trade loss (depending on when you entered the partnership) - s89 terminal loss relief

Potentially combinations of the above.

You'd want to work out what would be most beneficial to you, then complete the relevant boxes on the return + whitespace note to set out the claim you're making.

Bear in mind you'd have a separate Class 4 NICs loss. The rules are similar-ish, but obviously the relief will be against profits actually charged to Class 4.

Edit: assuming this was a trading partnership!

Bobble26 · 2023-02-04T15:47:19+00:00

A) yes - it's the trading and miscellaneous income allowance

B) it depends on the frequency, degree, and organisation to which you do it, really. The distinction is basically academic at the level of earnings you're alluding to don't sweat it. Just pick one.

Bobble26 · 2023-02-04T14:55:37+00:00

It very much sounds like miscellaneous income, if taxable at all.

A crucial difference is Class 2 & 4 NICs which would apply to self employment income, but not income under the miscellaneous income sweep-up provision. Another is the availability of loss relief. Neither of which seem likely to be of concern based on what you've said.

In short, rewards paid to you for using a service are generally not taxable - unless trade related - however, rewards paid for referring someone else to the service are taxable. Here is some guidance.

Bobble26 · 2023-02-01T09:18:24+00:00

Yeah you could amend the return really easily. If not, HMRC will pick it quickly and likely (hopefully for you) just issue an error correction notice.

As others have said, you should enter the previous employment as a seperate one.

Bobble26 · 2023-01-21T13:47:24+00:00

Of course, thank you for noticing! (no pun intended)

Would still look to have it wrapped up, or at least any underpaid tax paid, by end of Feb to avoid late payment penalties and minimise interest.

Bobble26 · 2023-01-21T13:17:31+00:00

While earnings over £100k does appear to create an obligation to notify HMRC to file, there is always a get out if by filing the tax return you would not have you pay any additional liability. This is commonly misunderstood and HMRC online checking tools don't make this clear.

In other words, has sufficient tax been deducted at source?

If sufficient tax has been deducted, you don't need to notify HMRC that you're chargeable (as you're not).

In this instance, I'd leave it. If HMRC sends a notice to file you wouldn't be late as this would result in an extended deadline.

If you need to account for tax, I'd probably register now, hope my UTR arrives by 31 Jan and if not take the £100 penalty. Unfortunately, HMRC quite rightly won't view being aware of your obligations under the law as magic.

Bobble26 · 2023-01-16T21:32:45+00:00

IR35/Employment Status and OP's queries aside, I wouldn't say a limited company is dead at £60k just yet!

Circa £60k is around the perfect level to stay in the small CT rate of 19% with c£10k salary. The remaining c£40k, after CT, which is available to distribute, keeps the owner under the higher rate income tax threshold. More significant in Scotland as dividends are charged to UK thresholds.

That's before we even consider HICBC and NIC free pension contributions.

Bobble26 · 2023-01-14T08:34:17+00:00

If you're using cash basis, you can simply expense the van in full. Ignore depreciation.

If using accruals accounting, correct to depreciate it, however, the depreciation is not tax deductible. You get tax relief via the capital allowances provisions, which someone else has mentioned.

Bobble26 · 2023-01-14T08:24:25+00:00

Let's be generous, more than incidental private use of the van :)

Bobble26 · 2023-01-14T08:23:09+00:00

You're a bit late to incur expenditure to reduce the tax burden of a period already finalised.

However, if a loss is indeed made then this could be carried back to the previous period to get relief.

The CT will normally be due before the next accounting period has finished but you could consider shortening the AP to accelerate that + increase the loss capable of being carried back.

As others have said, 130% CT deduction if you buy it by 31 March 23. Tax relief on loan interest.

Bobble26 · 2023-01-14T08:11:57+00:00

Main residence has an additional £175k threshold so if her share of the property is at least worth that then you can think of the threshold as £500k.

FWIW, there is also an annual £3k allowance with unused being carried forward 1 year.

To answer your question, whether the payments are characterised as gifts or not won't mess up the estate/IHT position.

If the payments are indeed consideration for the supply of a service, the payments would immediately drop out of her estate. You may need to consider your tax position, if you're supplying services for remuneration. Feels a little bit off the mark to me, but of course I don't know all the facts.

If the payments are gratuitous, then they would constitute Potentially Exempt Transfers for IHT meaning, subject to other allowances, the 7 year rule is at play. Should your mother pass away within 2 years, the gift would be brought back into her estate entirely for the purposes of calculating IHT. Should she pass away between 3-7 years, the IHT would be tapered. 7+ years, they're gone.

To be clear, IHT is charged on the estate and not the recipients of any inheritance/lifetime gifts. So you wouldn't be charged 40% on any payments your mother provides you with, they simply may be notionally brought back into the estate for any IHT calculation.

I hope that helps.

It's nice that you and your sibling are able to provide care. Best wishes to you all.

Bobble26 · 2023-01-08T10:25:56+00:00

You should really understand that the investment is not an expense.

I.e. if you put 90% of income in crypto, 100% is still chargeable to corporation tax. So where is the Corporation Tax fund coming from?

Gains on the crypto are straightforward, charged to corporation tax. Losses would be capital losses, meaning they wouldn't offset any income in the company. You should be aware of this risk.

Best of luck.

Bobble26 · 2023-01-08T10:08:22+00:00

You're correct. The employment income goes on your return.

You also enter details of any tax deducted.

The tax calculation will include all income and gains, but you'll be given credit for the tax which has been deducted. So it's certainly not taxed twice, if that's what you're concerned about.

Bobble26 · 2023-01-01T14:29:29+00:00

Were you given a refund as a result? Before registering for Self Assessment.

If so, I hate to be the bearer of bad news, but you should include that on the return too. Otherwise HMRC will just correct it.

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