Self employed pension question

pjw11

I am self employed but have worked for the same customer for 25 years. As a thankyou this customer is going to give me a sum of around £30,000 with the idea of me investing it to help with a pension. I am not due to retitre for around 5 years. Is there any way I can avoid paying income tax / NI on what I assume the IR will class as a gift. I understand my customer will be claining tax relef on this 'gift'. I won't be bound to use it for a pension.

Thanks

xylophone

I understand my customer will be claining tax relef on this 'gift'.

Mystified by this.

If this person is actually making you an unconditional gift of thirty thousand pounds, I do not quite see what "tax relief" he can claim?

He would need to keep a record of it with his personal papers as a PET? http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

If this is indeed a gift, you have no income tax liability, but is it a gift?

Or is it salary disguised as a gift to evade tax?

And are you "self employed"? http://www.nidirect.gov.uk/are-you-a-worker-employee-or-self-employed

http://www.hmrc.gov.uk/employment-status/

pjw11

Thanks for replying.

I have no idea how the donor will claim tax relief but it is a Ltd company (family business) and they use chartered accounts and I am certain that they will by whatever means be claiming tax relief on it. I am absolutely self employed, I am free to and occasionally do the odd job for others. I think it is with the self employed / directly employed controversy in mind regarding pensions that they feel that they should make this 'gift' and it is in no way salary related, they simply want to help me in my upcoming retirement. yes there are some decent folk still around.

mania112

As it isn't your employer they will not receive any tax relief, but it will be a tax-deductable business expense.

In that case it might become complicated to call it a gift, and rather a payment of an invoice (i'm not sure the tax man would like to see 'gift' on a tax return, could be wrong).

The pension contribution will be a personal one, from you (regardless of who actually puts the money in) and it will therefore be you that receives the relief, and 20% will be added and paid into the pension.

If you end up being a higher rate taxpayer this year, you can claim a further 20% when you complete your self-assessment.

Mojisola

pjw11 wrote: »

I am self employed but have worked for the same customer for 25 years.

I don't see how you can have been self-employed if you only have one client.

mania112

Mojisola wrote: »

I don't see how you can have been self-employed if you only have one client.

It's common.

EDIT: ... and commonly involves being self-employed and have a client who is both a friend and a business owner.

Mojisola

mania112 wrote: »

It's common.

EDIT: ... and commonly involves being self-employed and have a client who is both a friend and a business owner.

And if the HMRC do a check and decide he should have been an employee all those years?

mania112

Mojisola wrote: »

And if the HMRC do a check and decide he should have been an employee all those years?

Not sure HMRC are concerned. So long as tax is being paid, they don't have powers to question how/why you're earning money in the way you are.

xylophone

Not sure HMRC are concerned.

http://www.hmrc.gov.uk/employment-status/
"A worker's employment status, that is whether they are employed or self-employed, is not a matter of choice."

ferox666

mania112 wrote: »

Not sure HMRC are concerned. So long as tax is being paid, they don't have powers to question how/why you're earning money in the way you are.

Nonsense. Self employed pay lower ni and employer pays no employer ni so hmrc do check this

jamesd

pjw11 wrote: »

I am self employed but have worked for the same customer for 25 years.

If this is your only customer it seems unlikely that HMRC will agree that you're self-employed under the rules that have been in place for the last ten years or so. Though maybe some industry-specific scheme will apply.

pjw11 wrote: »

As a thankyou this customer is going to give me a sum of around £30,000 with the idea of me investing it to help with a pension.

If it's a genuine gift you have no tax due on it. But it probably isn't really a gift but rather something that needs to be treated as taxable income. If you pay it into a personal pension you'll get income tax relief added automatically at basic rate.

If your customer intends it for pension use I suggest that you use it that way, it'd be a bad thing to lose a customer over.