Sorry timed out lat time;
Thanks for your response, just a few points for clarification.
1. Does it make a difference if I am a sole trader or just an Agent working on commission? The reason I ask is that that I am currently preparing my self-assessment return and previously I have submitted this as other income and not submitted and profit and loss as a sole trader.
2. When does the Statute of Limitations apply from? Is it from the initial contract date, last order/invoice date, last communication activity date or other? Again the reason I ask is when the foreign company went out of business I had no direct contact with the company or any receiver, however I did have contact with one of the ex-directors who suggested I assign all sales to him. I advised him that the contract is non-assignable and I would wait for the receiver to contact me to confirm before I could do that. I never heard anything back after that.
3. Is the Statute of Limitations the same whether you are a individual, sole trader, partnership or a limited company?
4. The original contact does not state a governing law, the foreign company is based in the UAE, I am based in the UK and all the sales activity was carried out in the UK. What governing law would apply?
5. Would the value of the outstanding sales amount make any difference to the taxation status? or whether it is classed as income or a windfall? and I assume if it is classed as a windfall it is not taxable?
I notice from your profile that you specialise in immigration law, so is this area of debt/taxation something you also have expertise in? If so; if I wanted/needed a formal letter of advice given is this something you or your firm would be able to provide?
That clears up a few of the points, but I am still unclear on the taxation part of it.
The money is currently held in an investment account in my personal name, and is around £30000.00 (US$50000.00). The other expert seemed to suggest that after the 6 year limitation it would be classed as a windfall and not subject to taxation. I am doing my self assessment return at the moment and wanted to know whether to account for it now as income or leave it as I may need to pay it back. If I leave it and the 6 year limitation passes how do I account for it then?
If I chose as you say let sleeping dogs lie and say in 6-12 months the receiver or someone from the original company contacts me, is the statute of limitation still from the original due date or is it reset from when they make contact again?
I did take advice from an accountant but he was unsure and advised I speak to a tax advisor or solicitor, hence I am here using this forum. Once I know where I stand with this, I need to get some formal advice as well, so if in the future if anyone came back to me I can say I took formal advice on this.
Just need to get this issue of taxation sorted out, my accountant suggested it maybe be classed as a windfall but was unclear. He didn't think it's classed as capital gains because it not a gain from an investment/property/shares etc. But again need to confirm this.
Is the request from the ex-director be classed as a demand for payment or would it have to be from the liquidator/receiver? As far as I can tell there has not been one appointed so far.
I think I am clear on all the points expect for the taxation part, do you know any tax experts out there that might know a definitive answer?
1. Is it a windfall, is it income, is it capital gains or other?
2. When and how should it be accounted for?
That would be great thanks,
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
1. You should hold it as a creditor in your books of account and pay it when and if requested so to do by the foreighn entity.
2. After 6 years limitation applies and you can take it out of creditors and use it as income.
3. It counts as part of your sales income and would be subject to Income Tax in the normal way.
I do hope that I have been of assistance in solving your conundrum.
Thanks for the answer, I am still a bit confused though.
I would understand your answer if I ran a business, produced accounts and that was actually my sales income, but it's not, I only take a commission as an agent. The money never really belongs to me I only collect on behalf of the company, so they are not a creditor to me but to the customers I bring to them. On my previous self-assessment returns I have just submitted my commission as other income.
Are you suggesting that I now actually submit it as a business and treat it as sales income and a creditor? If I did it that way would it not then affect all the previous returns I have submitted. Also then would there not be other taxes I need to consider such as VAT, PAYE, NI etc. on the sales I have made previously and these outstanding ones?
My accountant seemed to suggest that this would be classed as a windfall but was not sure how or if taxation applies. The previous solicitors answers also seemed to share this view.
Any more thoughts?
Firstly it has to be held somewhere in your books of account and creditors is as good as any other suspense account.
It might well be a windfall, but windfalls are still subject to taxation, so when you bring it to account at the end of the Statutory Limitation period it forms part of your profit.
I am so sorry to have to rain on your parade. Please be so kind as to rate me before you leave the Just Answer site.
So what should I tell my accountant when preparing my self-assessment return, to hold it as a creditor and where?
Also could you point me to the relevant rules on the taxation of this as a windfall or other so I can inform my accountant also.
Hold it in suspense until the Limitation Period expires. If you are asked for it then it is available for repayment.
There are no 'rules' for windfalls. They are income, but in some cases eg inheritances, pools or gambling wins, Premium Bonds payouts, gifts they are, of course, tax free.