Will I have to pay tax for this one off earning ?

edited 30 November -1 at 1:00AM in Cutting Tax
7 replies 649 views
swift_gtiswift_gti Forumite
86 Posts
Part of the Furniture 10 Posts Combo Breaker
edited 30 November -1 at 1:00AM in Cutting Tax
Hi all,

I work in IT and my employer was looking for a bit of software for a perticular task, there wasn't really anything available on the market that fitted their needs so I offered to put the software together (out of work hours) and sell it to them for £500.. they accepted my offer and I'm in the process of writing the software, but I have a question regarding payment;

My employer says they can't write me a cheque as I'm not a business so they will have to pay me a one off bonus in my paycheck, if this happens I'm going to get hit for tax etc.. on the £500.
Is there any way to avoid this ?
Or iIs it easy enough to set myself up as a business so they can write me a cheque? - Would that avoid getting stung for tax etc. on my £500?

Cheers!

Replies

  • fengirl_2fengirl_2 Forumite
    4.5K Posts
    Do you really want to go to the bother of setting up a company for a one-off payment? The tax would be more or less the same at the end anyway. They are correct in wanting to put it through the payroll as it covers them in case HMRC query the payment. You will pay 20% tax and 11% NIC on the payment - exactly the saem as if you did overtime for them.
    £705,000 raised by client groups in the past 18 mths :beer:
  • McKneffMcKneff Forumite
    38.5K Posts
    Part of the Furniture 10,000 Posts Name Dropper
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    fengirl is correct, you pay the tax on the extra, its still earnings. We all have to pay. Even if you set up a company, it would still be taxed at the of the year, just taxed separately or a change of tax code next year to cover it.
    make the most of it, we are only here for the weekend.
    and we will never, ever return.
  • ManAtHomeManAtHome Forumite
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    Would probably cost you more to set up a company, produce audited accounts, then close it down. Might be worth considering for a long-running £5k a year payment, but not for a one-off £500.

    If you're in a pension scheme with matching employer contributions could be worth diverting it to the pension.
  • swift_gtiswift_gti Forumite
    86 Posts
    Part of the Furniture 10 Posts Combo Breaker
    Ah ok thanks for the info.. that sucks though :(
    Tax man can come and write some code for me then he can have his share :p
    My £500 just turned into about £320!
  • Cook_CountyCook_County Forumite
    3.1K Posts
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    I know you do IT so can create a spreadsheet. How did you arrive at a 36% tax & NI rate?
  • More like £345 if you're a BR taxpayer, but still rather depressing, eh?

    The only thing worse than paying tax, is not paying tax :p
    Target Cash Net Worth: £25K by January 2012
    Progress
    May-08
    19.0%; May-09 40.0%; May-10 63.0%; May-11 58.4%; Jun-11 58.5%; Jul-11 58.9%; Aug-11 58.7%; Sep-11 59.0%
  • swift_gtiswift_gti Forumite
    86 Posts
    Part of the Furniture 10 Posts Combo Breaker
    How did you arrive at a 36% tax & NI rate?

    Beer and working out maths in my head :p
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