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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15950
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Last 18 months I having been receiving commissions

Customer Question

For the last 18 months I having been receiving commissions from a forex broker for introducing clients. Essentially I am a introductory broker.
Commissions have been paid to my personal account and tax is due when I complete my self assessment in January 2016 for year 2014/15.
From reading various internet blogs it seems I should of opened a limited company for these commissions to be paid to as the tax implications are a lot higher when funds have been sent directly to me ie 40% compared to 20% corp tax. Can I retrospectively do this ie vintage of the shelf company? What else could you advise?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.
Have you registered as self-employed? If so, when?
Customer: replied 2 years ago.
I am a finance consultant and have a limited company I invoice through, so I suppose I am already registered as self employed.
Vat is paid quarterly and corp tax annually.
Customer: replied 2 years ago.
I'm more of a contracter since September 2008.
Expert:  TonyTax replied 2 years ago.
Thanks.
If you are a director of a limited company, you aren't self-employed. Does the term "finance consultant" refer to something other than your introductory commissions? What is the nature of the contracting business?
Expert:  TonyTax replied 2 years ago.
Hi again.
I thought I'd post an answer before retiring for the night.
Using a so called vintage off the shelf company to effectively backdate your commission earnings into a limited company to avoid self-employed taxes will cause problems with HMRC if they look closely at it given that the income has been paid into your own bank account. If I were you, I'd disclose earnings to date as self-employment and set up a limited company to collect the commissions from now on.
You should have registered as self-employed by 5 October following the end of the tax year in which the business started. You can do that here:
https://www.gov.uk/working-for-yourself/overview
You pay income tax and class 4 national insurance contributions on self-employment profits. There is also a flat rate class 2 nic charge. Look here for information on NIC:
https://www.gov.uk/self-employed-national-insurance-rates
As you are probably aware since you already have a limited company, you only pay income tax and NIC personally on salary you draw from your existing company. A company pays corporation tax at 20%. Dividends are not liable to NICs and are treated as basic rate tax paid so significant tax and NIC savings can be made by using a limited company, especially if profits are high.
The timing of dividend payments can reduce exposure to higher rate personal tax. Of course, if you have a high income, you either have to choose to accept the higher rate personal tax liabilities on dividend drawings or limit them which leads to a build up of a reserve of undistributed profits. You could have your company make pension contributions into a personal pension plan which will save the company 20% in corporation tax and won't affect your personal tax position, though there are limits to what can be contributed.
I hope this helps but le tme know if you have any further questions.