Blogger
Share this content
0
13
2897

Hiding a transaction with a Ltd company

A client has been offered to do some work for a Ltd company, but he does not want his employer to know about it as it is likely to cause a bit of office politics among his colleagues. He does not wish to avoid tax in any way, he just does not want his employer to know that he may be working for another company to make day to day life more bearable.

The Ltd company has offered him a lump sum for the work he has proposed to do, and he has asked me to advise how he should accept this money. He wants to minimise his tax liability therefore a salary has been ruled out as he is a higher rate tax payer

His wife has a dormant Ltd company, and I was wondering if she set this up again, and accepted dividend in to this company would this help disguise the transaction? 

I cant really see any way of structuring the transaction so it does not look dodgy, and I think it will be impossible to hide the transaction. With a bit of digging I think his employer will easily find out whatever he does.

As I have already said, he wishes to pay all tax due, its just an office politics issue. Not sure how the tax man would look upon it mind you!

Thanks in advance

Replies

Please login or register to join the discussion.

Lack of detail

I wonder how his employer would know he is working for another company, unless his employers somehow see the records of the other company.

Is the ltd company in competition with your clients employer, or a customer? Your client could be in breach of contract if so.

It all sounds very suspect and underhand. Maybe you could explain a little more?

Thanks (2)

Eh?

"He does not wish to avoid tax in any way" vs. "He wants to minimise his tax liability"

Any way he could:

1. Take the job as a self employed contractor and declare it on his SATR

2. Take the job as a contractor through his own (or his wife's) Ltd Co, then charge a fee or take a salary or a dividend from it

3. Take a salary from the company providing the job

What is not clear is why any of these should be found out by your clients current employer. Are you concerned that if he is on the PAYE of the other company, HMRC will somehow communicate this to his main employer? Seems unlikely to me. You say: 'With a bit of digging I think his employer will easily find out whatever he does'; personally I'd be astonished if my employer could find out what I earn in my spare time. Is the company he is proposing to work for connected to his employer somehow?

Anyhoo: If the contractual relationship with the contractor is appropriate then 1. or 2. seem appropriate, the choice between them will depend on whether this is likely to recur, when he needs the money, how much money is involved, etc etc.

 

 

Thanks (1)

sorry...should have said he does not want to evade tax rather than avoid tax...he basically wants to pay the minimum of tax in a legal way.

If he chose option 1. then tax would be at 40% and then he would be paying class 2 & 4 so I ruled this one out. This would also rule out point 3.

I think point 2 is the only option, although CT will be charged if it is a fee. Could the company he is proposing to work for for make his wifes Ltd company a shareholder and pay it a dividend or does it have to be a named individual on the shareholder register? 

I don't think its an issue re the employer finding out earnings, its a political issue. If he was able to be traced as working or connected to the company who is offering him work, there may be issues. I may ask to see the employment contract to see if he would be in breach of his contract, working for the company so closely linked to his employers company.

Thanks for your speedy response and advice. Much appreciated.

 

 

Thanks (0)

If he works for the wife's

If he works for the wife's company in which he  is only the minority shareholder or has no shares why not pay dividends,which would be the wife's taxable income and not his and then all he has to do is get it from her

Pehaps he doesn't trust his wife or she earns lots of money as well

You end up with 3 clients - original plus wife plus her company- hurrah

Thanks (0)

ha ha. 

ha ha. 

The tax man may frown upon such a transaction?? She is on maternity so has no income, so she would pay not tax if she withdrew the cash herself. I thought that would be a bit dodgy but maybe its considered acceptable.

Thanks (0)

Without wishing to open a recent debate- if it's legal, it's legal.

 

I doubt if HMRC are sufficiently awake to bother with a one off

Thanks (1)

if he is higher rate why

does he have class 2 and 4 to pay?

Surely he has already paid max contributions so none payable?

Or is it investment income that makes him HR?

 

Thanks (0)

National Insurace

Agree with David if he is already in employment (and earning a decent salary) surely there would be no further NI?

Thanks (0)

If he sets up as a self employed contractor on the side, would he not have to pay class 2 and 4? Employment income is £80k, 

Thanks (0)

no extra NI in principle

The over all NI hit on an individual is capped (except for a small amount of ongoing class 1)

 

If you have 2020 tax tips and tools there is a calculator in there. I am sure tehre will be shed loads of calculators on t'internet if you havent.

 

You complete a class 2 and 4 deferrement and then review at the end of tax year, o as far as i can see not much if any extra NI

Thanks (0)

Thanks for that. That's valuable info.

 

Thanks (0)

my

fee note is in the post :)

Thanks (0)

Apart from ShirleyM's response we have overlooked the duties of an employee to his employer. Of particular note are the implied terms of employment:

1) To act faithfully.
2) Not to take bribes or make secret profit.

Both implied terms are firmly established in precedent.

If your client is intending to conduct work that is in competition with his employer he could be considered to be in breach of the implied term to act faithfully.

Furthermore, at common law if your client is "found out" and sued (for breach of the implied term of employement), your client's employer could be awarded damages to the amount of your clients gain.

 

I would seriously consider advising your client of this potential issue. Seek further specialist advice if you feel you need it.

Thanks (0)