How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3825
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

Hi Mine is an Enterprise Investment Scheme query. I work

Customer Question

Hi
Mine is an Enterprise Investment Scheme query.
I work as a contractor (via my own limited company) for the local authority doing economic development work. In the course of my work I became familiar with a small recycling company which has spun out from a respected University.
I have invested £100,000 in that company. It's EIS eligible and I await the certificate.
Separately, the recycling company has asked me to promote its product to local authorities more broadly. They value my experience in dealing with local authorities. They are offering me a commission of c£45,000 on each piece of kit sold (typical capital cost is c£3 million).
I don't plan on becoming an employee or a director of the recycling company (but could do if you think it's advantageous).
So.....is there a way of entering into such a sales commission agreement (maybe via my own limited company), without falling foul of the EIS rules such as apply to "connected persons" ?
Clive
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Clive, I'm Keith and happy to help you with your question.
As you are probably aware, a director of a company is an employee per se and must be remunerated through PAYE arrangements, just a significant point. The EIS rules regarding connected persons are as follows [HMRC Advice Notice VCM11080]
'An individual is connected with a company if he or she, whether alone or together with any associate, directly or indirectly possesses, or is entitled to acquire:
More than 30% of the ordinary share capital (as defined at ITA07/S989) of the company or any subsidiary, or
For shares issued before 6 April 2012, more than 30% of the composite total of the loan capital and issued share capital of the company or any subsidiary, or
More than 30% of the voting power in the company or any subsidiary, or
Such rights as would, either in the event of a winding up or in any other circumstances, entitle the individual to receive more than 30% of the assets of the company which would then be available for distribution to equity holders of the company.'
You question is silent as to what proportion of the share capital of the recycling company. If you breach the 30% rule you are a connected person. That is the acid test.
Which way you wish your commission to be paid is a matter for you. If you are fortunate a substantial income might be coming your way. As an employee about the only way to mitigate this is be paying into a Private Pension Plan, but you (including any contribution by your employer) can not exceed 40K in the 14/15 tax year, 50K the year before and unlimited prior to that. In any event all contributions may nor exceed 100% of emoluments. In some Pension schemes eg SIPPs, you can go back several years to mop up unused contribution limits. A limited company avoids all Corporation Tax on direct pension contributions.
I do hope I have assisted you in solving your conundrum.
Expert:  bigduckontax replied 2 years ago.
Small amendment:
Paragraph 8, line 1; after 'of the recycling company' add 'you have acquired'.
Customer: replied 2 years ago.

Did you recieve my reply/clarification re VCM11050?

Customer: replied 2 years ago.

VCM 11080 appears to relate solely to connection by virtue of proportion of capital owned - I will be well below the 30% threshold.

My concern relates to the other form of connection - explained in VCM11050. This explains employees, partners and (with some exclusions) directors are deemed to be connected persons and therefore ineligible for certain EIS reliefs.

Would a sales commission agreement between the recycling company and my own company (of which self and wife are sole shareholders and directors) make ne "connected" and thus disqualify me from any of the EIS reliefs?

Clive

Expert:  bigduckontax replied 2 years ago.
With respect, I cannot see how VCM11050 applies. You are neither a director nor an employee nor a partner. You are merely a shareholder. Your firm receives commission from the company for introducing customers, a perfectly normal business transaction. I do not see that you have anything about which to worry which is why I did not mention it initially in my response.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

Related Tax Questions