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bigduckontax, Accountant
Category: Tax
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I have recently accepted a VS deal from my employer. I intend

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I have recently accepted a VS deal from my employer. I intend to set up on my own as a sole trader soon in an area that is not the same as the role I was in formerly. My VS amount was taxed appropriately . My former employer would like to offer me work as a consultant in my new self employed capacity but I have been advised that this would have significant further punitive tax implications for me. Is this the case?

Hello, I'm Keith and happy to help you with your question.

I am at a slight loss as to understand what punitive tax implications? Could you please expand upon your question? What have you been advised and by whom?

If you are re-employed any income earned will be liable to income tax along with any pension coming into issue and, of course, any VS over 30K. In the next tax year, of course, this big whammy will disappear.

Customer: replied 3 years ago.

The 'advice' was offered by a former Lloyds bank employee at an event we were both attending as delegates - just got chatting as he seemed to be taking a similar route to self employment as I am contemplating and I was listening about his experiences. It was at the point that I suggested I would be doing some work for my former employer in a self employed capacity that he raised concerns.

He was suggesting that there would be implications for £30k that I received tax free as part of the severance package - or at least that's what I think he was indicating. My former employer has already deducted tax on amounts over 30K

The VS deal was effective 31.12.14. and I don't intend to work again before the next tax year starts.

Right so we have got to the bottom of the problem. Your past employer has quite correctly not taxed the first 30K of the VS and so in 14/15 you have been taxed appropriately on your emoluments and severence. You have, in the current tax year, received the whammy I mentioned.

Next tax year when you restart as a sole trader, don't forget to advise HMRC of this intention when the new tax year starts, they will ensure that you are sent self assessment tax forms ar the end of the 15/16 tax yera. Mark you, I suspect that they will want you to self assess for this year after 5 April anyway. Any invoices you raise against your old employer for new work will merely be normal income within your self employment. I do appreciate that you will be so sucessful that you will rocket into higher rates tax [joke], but any work you perform for your old employer will merely be taxed at your marginal rate.

I do hope I have put your mind at rest on this matter.

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