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Where Taxpayers and Advisers Meet

Most tax efficient way to gift money to employee

Woolzer
Posts:4
Joined:Sat Jan 01, 2022 8:02 pm
Most tax efficient way to gift money to employee

Postby Woolzer » Sat Jan 01, 2022 8:08 pm

Hi there,

As part of an informal agreement between myself and an employee I’m wanting to reward the individual with a large sum of money (six figures). As the employee is not a director (or associated to the business in any other way other than an employee), I cannot simply pay a company dividend.

At the moment the only possible route I can see is offering it as a bonus, however the taxation on such a large sum of money will probably be c. 40% (income tax & NI).

Are there any alternative solutions here that don’t break laws, and that HMRC would approve of?

A left field solution would be for the employee to registered a LTD business and invoice my company, or would that be frowned upon by HMRC?

Any assistance is greatly appreciated! Whilst I am seeking advice from other sources (accountants), I wanted to see what the community here has to offer :)

pawncob
Posts:4879
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Most tax efficient way to gift money to employee

Postby pawncob » Mon Jan 03, 2022 11:18 am

Sack him and make a redundancy payment. :D
With a pinch of salt take what I say, but don't exceed your RDA

Woolzer
Posts:4
Joined:Sat Jan 01, 2022 8:02 pm

Re: Most tax efficient way to gift money to employee

Postby Woolzer » Mon Jan 03, 2022 12:03 pm

Sack him and make a redundancy payment. :D
Thank you for the reply! This is genuinely something we looked into (and then have him work as a contractor or join again the following month), but this would only provide up to £30k tax free.

Of course there’s no magic solution to pay zero tax, but if feels that paying via a pay check is probably the most tax inefficient way possible!

darthblingbling
Posts:497
Joined:Wed Aug 02, 2017 9:09 pm

Re: Most tax efficient way to gift money to employee

Postby darthblingbling » Mon Jan 03, 2022 11:34 pm

If you're paying directly as cash then there's little to do to avoid tax and NIC. A sham redundancy payment wouldn't even reach section 401.

Woolzer
Posts:4
Joined:Sat Jan 01, 2022 8:02 pm

Re: Most tax efficient way to gift money to employee

Postby Woolzer » Tue Jan 04, 2022 2:26 pm

What about the option of him creating a LTD company? Would it be possible to transfer/send money from my company to his, and if so what taxes/fees would be applicable in doing so?

Thanks all for the insightful replies :)

darthblingbling
Posts:497
Joined:Wed Aug 02, 2017 9:09 pm

Re: Most tax efficient way to gift money to employee

Postby darthblingbling » Tue Jan 04, 2022 10:49 pm

Would likely be caught under ir35 given it's clearly related to the employment

AGoodman
Posts:1419
Joined:Fri May 16, 2014 3:47 pm

Re: Most tax efficient way to gift money to employee

Postby AGoodman » Mon Jan 10, 2022 4:36 pm

It's worth noting here that people have been trying to find ways to pay a tax free bonus to their staff for many decades.

A lot of those people have been large banks paying advisers large sums of money to find ways to avoid/reduce tax on multi-million pound bonuses amounting to 9-10 figures each year.

In return, the Treasury and HMRC have produced entire books of new legislation to combat avoidance of income tax and national insurance.

This is all a long (and, I acknowledge, fairly condescending!) way of saying that I'm afraid you are very unlikely to find a solution to this other than paying tax on it, which is kind of the expected outcome when paying your staff.

ben_power
Posts:69
Joined:Tue Feb 27, 2018 8:34 pm

Re: Most tax efficient way to gift money to employee

Postby ben_power » Mon Jan 10, 2022 10:55 pm

You could pay a 'bonus' and then they could make a pension contribution. £40,000 for this year and then they have potential carry-forward from the previous 3 tax years to utilise. This would enable you/your employee to make up to £160,000 contribution but.... the funds would be tied up until they were at least 55 (depending on their date of birth).

Woolzer
Posts:4
Joined:Sat Jan 01, 2022 8:02 pm

Re: Most tax efficient way to gift money to employee

Postby Woolzer » Thu Jan 13, 2022 10:31 pm

Thank you everyone who's contributed here. I think the employee is going to setup a LTD company and I'm going to transfer £XXX,XXX into the business for him. Unless I'm mistaken, the only tax payable here will be corporation tax at 19%?

So if £100,000 (to keep the numbers simply) was transferred from my LTD to his new LTD company then after corporation tax his business will 'take home' £81,000?

The employee is wanting to invest in property so this seems to be the most tax-efficient way for him to do so. Any insight is much appreciated!

darthblingbling
Posts:497
Joined:Wed Aug 02, 2017 9:09 pm

Re: Most tax efficient way to gift money to employee

Postby darthblingbling » Fri Jan 14, 2022 11:45 am

Yeah let's all resign and set up LTD company's and never pay National Insurance again. Hope the government doesn't get wind of this and put in legislation that counteracts the tax and NIC saving...


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