Reducing Income Tax on Bonus Payment via Limited Company

Apologies in advance if this question is silly (or if my suggestion is illegal) but I don't really want to approach an accountant and look completely wet behind the ears, which I am on this subject. 

At the end of each October I receive a bonus payment, all of which falls into the 40% tax bracket (and my wage doesn't quite get there), and I would dearly like to find a way to lessen the impact of this on the take home amount. We are talking £15k going in one end and about £8k actually going into my wage. 

Is it plausible to start a company that uses my house as a location home for staging adverts, photos shoots etc and to have the £15k paid into that company, then use the balance throughout the year to make improvements to the house, in order to increase it's suitability for that type of business. The end goal being that there will be no corporation tax to pay as there is no profit on the business. 

I am sure there are various holes in my plan but if someone in the know could put me out of my misery or confirm my plan is doable, I would be very grateful. 

Comments

  • eskbanker
    eskbanker Posts: 29,855
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    The first issue to consider is whether your employer would be able and willing to enter into a contract with your limited company, as that would be the only way to avoid the money being treated as your personal income, regardless of what you chose to do with it thereafter.
  • DE_612183
    DE_612183 Posts: 1,607
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    edited 26 September 2023 at 2:04PM
    Even then - would you rent your house to the limited company?
    What about VAT?
    What about CGT when you sell?

    I presume your salary is about £37k?

    The only other thing I can think of is to get the £15k paid into a pension?

    At the end of the day - you have earned £52k and you should really pay tax on that amount regardless of whether it's salary or bonus...
  • Grumpy_chap
    Grumpy_chap Posts: 14,393
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    edited 26 September 2023 at 4:55PM
    eddogg23 said:

    At the end of each October I receive a bonus payment, all of which falls into the 40% tax bracket (and my wage doesn't quite get there),
    DE_612183 said:

    I presume your salary is about £37k?
    I presumed basic salary around £50k plus the £15k bonus.

    Extra pension is probably the best approach, particularly if the OP can use SS (if the employer offers it).

    There are many practicalities around the LTD Co approach:
    Why would the employer have a contract with a company offering film location?
    Would the OP's company satisfy the employer approval process?
    Will this contract fall under IR35?
    What insurances does the LTD Co require?
    How will the LTD Co gain clients requiring film location?
    How will the LTD Co secure the property to make available for film location?
    Personal taxation on funds drawn from the LTD Co.

    Or, is the LTD Co not actually planned to trade?
  • The simple fact here is that the bonus is employment income and the employer is required to deduct tax in accordance with the PAYE regulations.



  • Thanks all, it is as I expected. My point regarding salary was that all of the bonus falls into the 40p rate but I only just sit on the threshold for 40p tax so £15k is a lot of money to pay half on in one go. I need the net payment so additional pension isn't an option right now but will be in the future, thank you. I will just have to suck it up at this point but I would be able to get my employer to pay a limited company in the future so that information was also helpful. Thank you to all of you for taking the time to reply. 
  • Are you confident your employer would agree to pay any future bonus gross without deductions for PAYE tax etc. to you or into a company you set up?

    The bonus is employment income, it arises from a contract of employment for work you have done for your employer.

    Would your employer agree to attempting to label your bonus as a payment for other services and risk having to account for the tax it failed to deduct? 


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