Is my income taxable?

_chris_3

Hi all,

For the past year or two, almost all of my income has been in the form of gifts. There is a person who is essentially a patron of mine, who pays me to work on my own projects, with no expectation of services in return.

So far I've been invoicing the person, putting the income through my books and paying tax on it. But it suddenly occurred to me that because the money is given as a donation, and I do not technically work for this person, that maybe I do not need to pay tax on it.

Can anyone advise?

Edit: just to note, the money is coming from the US to the UK, just in case that makes any difference.

Bookworm105

what happens with the "projects" when you finish them?
how did an American become aware of your "work"?

_chris_3

Bookworm105 said:

what happens with the "projects" when you finish them?
how did an American become aware of your "work"?

Nothing happens to them. They are websites/web platforms which I hope one day will be acquired or be monetised somehow. There is no agreement that the patron would receive anything in return if this were to happen.

He found out about the work because the other person on my 'team' did some freelance work for him. Once he became aware of the work I do with this third person, he offered to support our personal projects financially.

Jeremy535897

If you have no contract with this person to provide anything to him, and he would receive nothing even if you one day made a lot of money for them, you could argue that they are not part of your business, which I assume consists of doing a similar sort of work but for which you do provide a service in return for payment.
Equally, any costs relating to the websites are not an expense of your business, which might affect the amount you can claim in respect of computer equipment, use of home etc.
However, if you are free to sell these websites and, if you did so, they would be treated as part of your taxable income, then it may be that these sums you "invoice" are more in the nature of a grant, and would therefore be taxable. See: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim40451

_chris_3

Jeremy535897 said:

If you have no contract with this person to provide anything to him, and he would receive nothing even if you one day made a lot of money for them, you could argue that they are not part of your business, which I assume consists of doing a similar sort of work but for which you do provide a service in return for payment.
Equally, any costs relating to the websites are not an expense of your business, which might affect the amount you can claim in respect of computer equipment, use of home etc.
However, if you are free to sell these websites and, if you did so, they would be treated as part of your taxable income, then it may be that these sums you "invoice" are more in the nature of a grant, and would therefore be taxable. See: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim40451

Thanks, I can see the argument to call it a grant but AFAIK grants require a return for the money. My situation does not require anything as such, he is simply supporting us to continue our own work.

I guess you could argue that it's not part of my business, since the projects so far do not make any money and only cost me money to keep them hosted. However, it is basically the only work I am doing because I'm being paid enough to live on from his donations.

caprikid1

"support our personal projects financially"

Sounds like you are working on projects together and he is paying you enough to live on, if there is no expectation these sums will be repaid that feels like a self employed web designer. 

I think you would struggle to argue that this is not a payment for projects.

_chris_3

caprikid1 said:

"support our personal projects financially"

Sounds like you are working on projects together and he is paying you enough to live on, if there is no expectation these sums will be repaid that feels like a self employed web designer. 

I think you would struggle to argue that this is not a payment for projects.

Sorry, to confirm, I'm not working on the project together with the patron, I'm working with my friend who also receives money from the patron.

The difference with a self-employed web designer is that, they will be working on web projects for the client and get paid by the client. We are working on our own project, that the patron is supporting.

Maybe the best way to visualise it is by saying I am working on the next Instagram for example, it's my personal project and I'm hoping one day to be able to sell it. The patron is paying me to do that, they have no stake in the project at all.

MattMattMattUK

I think you would find it very difficult to argue that these are genuinely gifts and I suspect that HMRC would take a very dim view of the opinion that they are gifts. If you want to try and go down the route then I would advise you that you take specialist advice from a tax lawyer. 

Albermarle

_chris_3 said:

Jeremy535897 said:

If you have no contract with this person to provide anything to him, and he would receive nothing even if you one day made a lot of money for them, you could argue that they are not part of your business, which I assume consists of doing a similar sort of work but for which you do provide a service in return for payment.
Equally, any costs relating to the websites are not an expense of your business, which might affect the amount you can claim in respect of computer equipment, use of home etc.
However, if you are free to sell these websites and, if you did so, they would be treated as part of your taxable income, then it may be that these sums you "invoice" are more in the nature of a grant, and would therefore be taxable. See: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim40451

Thanks, I can see the argument to call it a grant but AFAIK grants require a return for the money. My situation does not require anything as such, he is simply supporting us to continue our own work.

I guess you could argue that it's not part of my business, since the projects so far do not make any money and only cost me money to keep them hosted. However, it is basically the only work I am doing because I'm being paid enough to live on from his donations.

If it was truly a gift, then you could spend the money on anything you like.
So would the patron be happy and keep sending the money, if you spent it all on holidays or at the bookies and did nothing tangible with it ? 
If the gift is tied to you using it to support your work, which it sounds like it is, it is a grant of some kind. Regardless that they want nothing monetary in return.

born_again

I guess the only danger with not declaring the payments is if HMRC took a in depth look at your financial situation, could/will bring up what are the payments for.
Especially as you have been declaring them & now stop. 
Maybe take advice from a accountant.

Same could also go if you applied for a mortgage. Source of funds would come into play. 

Maybe set up a separate company for these sites & as above look at offsetting the costs against the payments.

FlorayG

You don't invoice for a gift, you send a nice letter of thanks. Then you spend it on whatever you like. So I don't think you could argue this is a 'gift' although I think there may be a way of not classing it as 'income' either. I would be asking a tax specialist, a few hundred pounds on that might save you thousands