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Nice Little Unexpected Bonus

... But is it taxable??

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I recently helped out a client with an HMRC matter. The final result was significantly better than the client was expecting, and they were so pleased they said they'd like to give me a bonus. It was genuinely non-contractual and unexpected, and was the first (and I'm sure the last) time it's ever happened.

I then went to get my hair cut and told my hairdresser, who is also a client of mine. We both were impressed at my importance and new found wealth, although ironically when I went to pay my debit card was declined due to lack of funds. How we all laughed. Well, when I say "we all", I mean mainly my hairdresser and the other clients in the salon.

Anyway, sorry, back to the serious point. Is this bonus taxable? I must confess I was keen for the client not to "forget" his kind offer, so I sent him an invoice that included the bonus amount (plus VAT... that'll teach him).

Replies (25)

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By the_Poacher
05th Sep 2017 16:27

Yes it's taxable

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Portia profile image
By Portia Nina Levin
05th Sep 2017 16:34

mabzden wrote:

I must confess I was keen for the client not to "forget" his kind offer, so I sent him an invoice that included the bonus amount (plus VAT... that'll teach him).

I suspect you probably mean ex-client.

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By Tax Dragon
05th Sep 2017 16:44

What was the fee narrative?

Interesting that you don't question VAT (too programmed to think of that as "his" cost... although as Portia points out, your relationship skills maybe could do with a polish) but do query income tax (your cost).

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Replying to Tax Dragon:
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By mabzden
05th Sep 2017 16:55

It was quite vague - along the lines of "remaining work to close XYZ matter with HMRC".

I would be interested to know any consequences for VAT too.

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By michaelblake
05th Sep 2017 20:53

Yes it would be nice if it was not taxable wouldn't it then we could all bill our clients for 10% of the value of the work we have done and add a 90% non taxable bonus to the fee. I wonder why no one has thought of this before? You might want to read Simpson v John Reynolds & Co (Insurances) Ltd [1975] 49TC693

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By Accountant A
05th Sep 2017 22:19

Assuming this isn't a p*** take, does the fact that you have acknowledged, in writing, the fee as a charge for services rendered not cause an issue?

Assuming he's in business, have you told him he won't get a tax deduction for the gift?

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Replying to Accountant A:
By mrme89
05th Sep 2017 22:23

It's not a gift though. It's for services rendered ... apparently.

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Man of Kent
By Kent accountant
05th Sep 2017 22:29

Schoolboy error.

You should have asked for used non-sequential 20's in a brown envelope.

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Replying to Kent accountant:
By SteLacca
06th Sep 2017 09:08

new £5 are safer - fewer forgeries, although there will be extra cost for more envelopes.

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By SXGuy
08th Sep 2017 10:24

Has to be a p take. Added to an invoice, charged vat, and asks if it's taxable..... OK.

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By forgeron
08th Sep 2017 10:31

If you're serious you don't deserve to keep this client.

Invoicing and charging them VAT?

Shameful.

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By Husbandofstinky
08th Sep 2017 12:13

Can't believe I actually read through this.

To the OP - really?

Enjoy the weekend.

No offence intended if this is genuine.

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Morph
By kevinringer
08th Sep 2017 13:56

Maybe I should invoice all my clients for a bonus. I could then afford to lose some because the loss of a few fees will be more than made up by all those lovely bonuses (or is that bonusii?) so maintain my current total income for less work. I'm annoyed that I've been missing this trick for the last 30 years.

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By mabzden
09th Sep 2017 13:02

Thanks for the comments (and occasional abuse) above.

It is all true, including the bit about the trip to the hairdressers.

I shall hang my head in shame and pay tax on the bonus.

The client still loves me by the way, despite the unfortunate VAT incident.

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By North East Accountant
11th Sep 2017 09:10

Assuming that you are not joking you seriously need to undertake some tax training.

Of course, it's taxable.

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Replying to North East Accountant:
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By mabzden
13th Sep 2017 10:28

Thanks for that comment.

If you'd read the previous replies you would have seen several similar comments (i.e. you're a disgrace, of course it's taxable income, how dare you charge VAT on what I've just said is obviously trading income etc etc) over the previous week. So your comment doesn't really add to the conversation, contain any insight or knowledge, and just repeats some of the negative sentiments other people made a week ago.

Thanks to michaelblake for being the only person to quote a tax case. Based on that case, it's possible to have an unsolicited payment that is recognition of past services and therefore counts as a trading receipt. That seems to be an informative answer to what was a valid question.

I shall go away and ponder whether one or two contributors may have been a bit more cheerful and constructive if the roles were reversed.

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Replying to mabzden:
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By the_hoff
13th Sep 2017 10:24

mabzden wrote:

I shall go away and ponder whether one or two contributors may have been a bit more cheerful and constructive if the roles were reversed.

LOL, I think you may have a point there!

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Replying to mabzden:
Quack
By Constantly Confused
13th Sep 2017 11:23

mabzden wrote:

Thanks for that comment.

If you'd read the previous replies you would have seen several similar comments (i.e. you're a disgrace, of course it's taxable income, how dare you charge VAT on what I've just said is obviously trading income etc etc) over the previous week. So your comment doesn't really add to the conversation, contain any insight or knowledge, and just repeats some of the negative sentiments other people made a week ago.

Thanks to michaelblake for being the only person to quote a tax case. Based on that case, it's possible to have an unsolicited payment that is recognition of past services and therefore counts as a trading receipt. That seems to be an informative answer to what was a valid question.

I shall go away and ponder whether one or two contributors may have been a bit more cheerful and constructive if the roles were reversed.

I'm glad someone is still keeping up the tradition of cheerfully asking AW users questions they know they will be mocked for. I had to give it up after a few members felt they needed to make everything personal.

But we only have nice friendly members on this board now don't we?
#Reads responses to thread in full#
Oh...

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By mrme89
13th Sep 2017 11:47

You did miss a question from your post, however.

You have not yet asked if it is tax deductible for the 'donor'.

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Replying to mrme89:
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By the_hoff
13th Sep 2017 15:25

The question was whether this is trading income, and therefore by extension a trading expense for the client, or whether it's a gift.

Your earlier comment above didn't exactly enlighten us all as to the answer.

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Replying to the_hoff:
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By Tax Dragon
13th Sep 2017 15:50

Flip that around and you might regret it slightly. I suspect (and hope) that you don't determine whether your earnings are taxable by reference to the tax relief obtained by your clients.

I agree with remarks above re personalisation of negative comments, which is seldom justifiable.

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Replying to the_hoff:
By mrme89
13th Sep 2017 16:01

Nope. The question was 'is this bonus taxable'. There wasn't an extension to anything.

My earlier comment did not attempt to answer the question. I don't attempt to answer questions that I think are a wind up.

The question reminded me of one of First Tab's April fools threads ... intended to be a joke, but not very funny.

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By mabzden
14th Sep 2017 19:25

mrme89 wrote:

I don't attempt to answer questions that I think are a wind up.

Apologies if you thought it was a wind up. If you don't attempt to answer questions you think are a wind up then that's fine with me. Don't respond.

So here's one comment from the above thread:

forgeron wrote:

If you're serious you don't deserve to keep this client.

Invoicing and charging them VAT?

Shameful.

Did that person also think it's a bit of wind up? Or is something else at play, such as resentment at someone else's good fortune?

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Replying to mabzden:
By mrme89
13th Sep 2017 16:55

I'm free to respond to any thread as I see fit. It's an open forum.

I have no idea what Forgeron thought. If you are curious, perhaps you would be better directing the question at them?

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Man of Kent
By Kent accountant
13th Sep 2017 17:19

Keep schtum and follow the brown paper bag option.

Give it a few weeks and this will be old news.

I'll look forward to reading about the brand new Merc you get for 'over delivering' next year ;o)

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