Christmas Bonus

[WordIsBond]

So, one of my overseas clients just informed me that they have just paid into my account a Christmas bonus. Over £5K in GBP, calculated on a percentage basis to be comparable to what they are paying their permanent employees.

No SDC, never have worked on site there, contract is IR35 clean, as are working practices. There's nothing in the contract about this, they didn't even tell me until it was done. They say they "appreciate your work, and it's been a very good year for us, and we want everyone who has been part of our success to have a great Christmas."

If this could be used by HMRC to drag me into IR35 on my contract with them, it would cost me more than £5K for this year alone, and I will probably continue to have part time contracts with them ongoing for several years. I don't want every contract with them to be IR35 caught.

But they don't know or care about IR35. I think this is about wanting to keep me happy and get me signed to a long-term retainer deal so they can call on me if they need me. But I'd have done that anyway -- that's good business. And I'd have no problem at all if they wanted to structure it as a signing bonus for a retainer. The problem is that they calculated it the same way they calculated employee bonuses.

So, do I A) say "Thank you very much" and enjoy the money and forget about IR35 B) say "Thank you very much, but going forward let's structure a contract in a way that we can at least make some kind of argument that this is in the contract" C) say "Here's your money back, I appreciate it but this kind of thing can make the UK tax authorities think I'm your employee and it could cause a big red tape mess."

What does everyone think? I tend towards A), and let IR35 take care of itself. I could use a Caribbean holiday during the dark days of Jan/Feb. But if there are reasons this is a really bad mistake to quietly take the funds, I'd like to know.

[spoons]

Invoice it as a project completion bonus, job done

[aoxomoxoa]

If it was me I'd raise an invoice so it doesn't look unsolicited (whether I'd send it to the client is another question). Not sure if that would make any difference to HMRC but at least it would make sense in the annual accounts.

[psychocandy]

If you're worried about it, I can take it off your hands....

[pr1]

keep it

[jamesbrown]

Obviously, it isn't a good look, but it's unlikely to be a decisive factor and it may not be a factor at all, depending on the context. For example, if they pay bonuses to all of their suppliers, including their largest suppliers, as well as their employees, it is not a discriminating factor. If they pay bonuses to all "individuals" in recognition of their personal services, but not to their larger suppliers, that's not good. However, there's little value in refusing it now. It's done, so any associated damage is done, which is probably very little. However, it may be worth reflecting on how they view the relationship more generally.

[WordIsBond]

If it was me I'd raise an invoice so it doesn't look unsolicited (whether I'd send it to the client is another question). Not sure if that would make any difference to HMRC but at least it would make sense in the annual accounts.

If that ever came out in an investigation, wouldn't it look like I was trying to hide something, and potentially cause far more trouble?

For example, if they pay bonuses to all of their suppliers, including their largest suppliers, as well as their employees, it is not a discriminating factor. If they pay bonuses to all "individuals" in recognition of their personal services, but not to their larger suppliers, that's not good.

Yeah, it's the latter. More details filtering back to me. They've had a killer year, and the first phase (completed in August) of our project tore through a marketing barrier for them and allowed them to double revenue between July and November. All employees got this, but so did the two independent guys who worked on this project. If I'd known they were going to do this, maybe I'd have spent more time on it to increase my percentage.

However, there's little value in refusing it now. It's done, so any associated damage is done, which is probably very little. However, it may be worth reflecting on how they view the relationship more generally.

Theoretically, I could return it as a "mistake" and there wouldn't be any damage done at all.

It's probably more indicative of them being flush with cash beyond prior experience, and feeling Christmas cheer, than anything about how they view the relationship. Although like I said, once this second phase is done they say they want to set up a retainer agreement, so this may be intended to smooth the way for that, too.

[WordIsBond]

If you're worried about it, I can take it off your hands....

It's good to know I have friends standing by to help me out, but I can't do that to you -- it might negatively affect your next JSA application.

[jamesbrown]

If that ever came out in an investigation, wouldn't it look like I was trying to hide something, and potentially cause far more trouble?


Yeah, it's the latter. More details filtering back to me. They've had a killer year, and the first phase (completed in August) of our project tore through a marketing barrier for them and allowed them to double revenue between July and November. All employees got this, but so did the two independent guys who worked on this project. If I'd known they were going to do this, maybe I'd have spent more time on it to increase my percentage.


Theoretically, I could return it as a "mistake" and there wouldn't be any damage done at all.

It's probably more indicative of them being flush with cash beyond prior experience, and feeling Christmas cheer, than anything about how they view the relationship. Although like I said, once this second phase is done they say they want to set up a retainer agreement, so this may be intended to smooth the way for that, too.

I wouldn't sweat it if your WP are otherwise strong and, from what I recall of your situation, it would be difficult to argue that you were a disguised anything. If all suppliers got it, it isn't discrimininating. There's little value in returning it now, as it will show in your accounts and it's pointless trying to hide the intent. Free Christmas boom

[Louisa@InTouch]

I think the 'bonus' would be something that HMRC would latch onto, if there was an IR35 investigation.

But as long as you have a number of really strong factors that still help you point away from employment, you can argue back!

You will need to make sure this income is recognised in your accounts. I would agree with your client together the description on the invoice. I wouldn't suggest calling it something that it's not, in case the client needs to support this at a later date.

One other thing you will need to consider is VAT too, if you are registered.