Extra Income

[maverick192]

About a year ago (before I was ltd co) I did some work on a personal pet project to build up a module for the DotNetNuke portal.

At the time, I did the work because I ran a portal and needed the functionality of the module I built. After a couple of weeks of using the module, it became clear that other people were interested in it and I started selling copies via a site called snowcovered (they are just a middle-man distribution type affair who charge a commission) with payments taken via PayPal.

The monies involved were small and paid directly into my personal bank account from my PayPal account whenever I felt like doing so.

Since then, the module has grown in popularity and I'm beginning to make a fairly significant amount of profit (around £500 a month after commissions, etc are taken out).

Now that I'm a ltd co director, I'll have to fill in a tax return and presumably this extra income will have to be declared, so my question is how should I deal with this in the most tax efficient way?

Should I:

1. Run the sales as through my ltd co, paying corporation tax on profits and charging VAT on purchases as I'm VAT registered.
2. Keep the income coming in as it is (is this even "tax legal"?) and deal with any tax issues as part of my tax return.
3. Do nothing, the income doesn't need to be declared.

I do have an accountant and will ask their advice too, but was curious what the experts here would do.

Thanks in advance.

[Lockhouse]

Personally I'd keep it separate from the company.

Once you have something in your company you lose that flexibility. For example if you wanted to live abroad or fold the company for any reason it would be more complex if you had to transfer all your stuff back to yourself.

I'm sure others will disagree but that's just my 2p worth.

[IR35 Avoider]

I would go for option 2, provided I could organise my affairs so that I wasn't a higher-rate tax-payer. (You need to declare the income on your tax return.)

I definitely wouldn't choose an option that involved charging VAT before I had to. For most customers this would be a real extra cost, so it would reduce your profit proportionately.

If the income eventually became too large to take as personal income without being a higher-rate taxpayer, I would start a dedicated company just for that income, which then still wouldn't need to charge VAT until I hit the VAT registration threshold.