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bigduckontax, Accountant
Category: Tax
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I am a self employed software builder who gets paid through

Customer Question

I am a self employed software builder who gets paid through my own limited company. In January 2007 I started to develop a software application which is now valued at £500,000. A large company has hinted that they would like to purchase the copyright to this application, so how much would I have to pay in tax? Would it be better to accept smaller payments of £100,000 every year for five years instead of the whole amount all at once?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

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.

Customer: replied 2 years ago.

I have assigned the copyright of this software to my limited company. Does this make any difference?

Expert:  bigduckontax replied 2 years ago.
Yes, it oes but the VAT principle remains the same.
What you are inferring is that the company has developed the software with you as an employee. Please remember that as a director of company you are an employee per se and must be remunerated under PAYE arrangements by the company. When the company pays you a salary then the Income Tax rules apply. If the Company retains some of the fees earned these will be taxed under the Corporation Tax regime, currently of the order of 20% up to 300K of profit, 21% thereafter.
Customer: replied 2 years ago.

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?

Expert:  bigduckontax replied 2 years ago.
Yes, it would form part of the revenue stream of the company and thus be subject to the Corporation Tax regime.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3106
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
Afterthougt regarding my last post; it is, of course, the net revenue stream which is exposed to Corporation Tax.
Customer: replied 2 years ago.

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?

Expert:  bigduckontax replied 2 years ago.

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.

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