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Golden Hello

Golden Hello

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A new client who currently works through his own limited company has been asked if he will transfer to being employed under PAYE by one of of his existing clients. In return for that he is being offered an upfront  golden hello approximately equivalent to  5 years charges. This can be paid either to his limited company or him personally whichever is tax advantageous to him. Thereafter he will be paid a normal salary. Any wise thoughts out there?

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By JCresswellTax
11th Feb 2011 09:18

Tax Planning

A bit of tax planning required I think !

If he receives it as an employment payment, he is likely to suffer tax and nic of somewhere in region of 41% - 52%.

If he receives it through the company, there will be CT payable of 20/21% BUT he then has to get the funds out of the company.

I would be looking at the spouses tax position (if he has one!) and consider transferring the shares in his ltd co to his wife to utilise her basic rate band.

If that is not an option, it depends if he needs the money now (probably choose employment payment) or if he is happy to leave the funds in the company until a later date (i.e for a period he in unemployed, off on long term sick or even as a retirement fund).

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By bernard michael bayly
11th Feb 2011 09:29

Golden hello

Thanks Very close to my initial thoughts, which were money into company, some shares to partner(not wife but covered by a buy back contract), and then at the appropriate future time liquidate the company to take the money out under CGT rules.The sum involved is in excess of £500000 so lots of tax involved if it goes wrong. How do footballers manage it I wonder with transfer fees?

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By cathygrimmer
11th Feb 2011 10:01

Legal position

I am sure you realise that just paying it to the company won't make it the company's income if it is, legally, an inducement to the individual to become an employee. I imagine the prospective employer will want a legal tie-in so your client can't take the money, start the job and resign a week later keeping the payment. I'm not saying it is impossible for it to be arranged so that it is the company's money - just that great care needs to be taken to ensure that legally it is income of the company not income of the employee paid to the company at his behest. With an amount of this size, HMRC may well take a close interest (and, of course, the employer will presumably want to ensure they are not exposed in the event of a PAYE enquiry).

There is some guidance here on inducement payments which may be of interest:

http://www.hmrc.gov.uk/manuals/eimanual/EIM00710.htm

Cathy

[email protected]

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By bernard michael bayly
11th Feb 2011 10:51

Golden Hello

Many thanks very useful pointers

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