Have Tax Questions? Ask a Tax Expert for Answers ASAP
Hello, I'm Keith and happy to help you with your question.
The sale of your software application is the sale of intellectual property and thus receipts form part of your trading account and will be taxed as Income Tax (IT) at your marginal rate. IT is charged at 20% for the first GBP 31865, 40% thereafter up to 150K and 45% above that level. Once income breaches 100K you loose your Personal Allowance at a rate of one pound for every two quid over. You would appear to be better off from a taxation point of view accepting staged payments. However, there is a danger, if the buyer defaults than you might have lost your software and not been fully remunerated.
Please remember that if your turnover exceeds 81K in any year you will have to register for VAT, charge it on any invoices you issue and settle with HMRC quarterly.
I do hope I have helped you to see the way forward with your business.
I have assigned the copyright of this software to my limited company. Does this make any difference?
If the copyright is owned by the company then does the sale of the copyright count as income for the company and therefore liable to corporation tax?
So if I pay the money from the sale of the copyright directly to myself as part of my salary then it counts as an expense and therefore is excluded from the profits and not liable to corporation tax?
Correct, the salary disbursed by the company is, of course, subject to Income tax in your hands.
Always bear in mind Benjamin Franklin's dictum that in life there are but two certainties, death and taxes.