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Freelancer being paid by shares instead of cash

What do I need to consider?

A client is a consultant.  Their client has paid then in shares instead of cash.  What do I need to consider when preparing the tax return?

Does income register as normal and then we end up with an investment value of the same amount?  Then when shares are sold, capital gains tax is paid on the profit?

Or is no income registered now and then capital gains tax will be due on the whole value?
 

Sorry thinking out loud - option 1 seems to make the most sense.  Thank you in advance

 

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20th Jun 2018 03:18

Did the freelancer raise an invoice for the work completed? Did he accept the shares as full payment of the debt? If the debt had been settled with brown drinking tokens what would the treatment have been? And what would have been the treatment if he used the brown drinking tokens to buy shares in the company?

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20th Jun 2018 07:14

Tim's right, and if the shares are quoted and in another company that's probably the end of it.

But if these are new shares issued by the client there could be further consequences.

Feel free to provide some detail.

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20th Jun 2018 09:31

Oooooh - this is a dangerous road to travel down. Watch out for the minefield as you go.

What's the value of the labour ? How many shares were issued ? What proportion of the total share issue does that represent ? What are the VAT implications ? Are these shares newly issued or bought from an existing shareholder ? What's wrong with getting paid in money and using that money to buy shares - if that's what he wanted ? Why do folk not think these things through before they do them ?

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20th Jun 2018 10:48

..... because the man down the pub/golf course told them they would save tax being paid this way

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to bernard michael
20th Jun 2018 11:22

bernard michael wrote:

..... because the man down the pub/golf course told them they would save tax being paid this way

Was his name James ?

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By zarar
20th Jun 2018 13:38

Thanks everybody - certainly a minefield ! No invoice raised, what a pain

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to zarar
20th Jun 2018 15:00

So, assuming these were new shares, how were they paid for ?

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By zarar
to lionofludesch
20th Jun 2018 15:04

Well that is a great question, I have no idea how the company issuing the shares has accounted for the transaction.

I have asked the client to go back to the company and find out this information.

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to zarar
20th Jun 2018 15:14

The company needs to know that it can't issue shares at a value below par.

That's a definite. It should fair value the services provided by the contractor and treat that as issue price. That value should include VAT, if the contractor is registered.

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20th Jun 2018 17:48

I've just got off the phone with an Counter tax avoidance inspector who is looking into a very similar scheme that my client got caught up in - innocently. But she was a PAYE temp and they paid her in dividends/shares and advances.
HMRC say all salary.
Re shares - so he's a shareholder of the company is he? More shares reduces a company's value. How will he sell the shares? Who to? At what price ? When?
Very messy and dangerous. Advise client (by email so you are covered should anything come back to bite in the future) to walk away.

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