HSMP extension- Earnings query

[hshah]

Hi,
I am applying for my HSMP extension in beginning of march and have a query on my earnings
I was a permanent employee from April 14th to August 14th,2008. Basically i have earned 4 months of salary and have UK payslips for the same.

From August i have been a contractor working through my own ltd company.
I transfer three amounts every quarter
1) Salary (very less only 2500 per quarter)
2) Dividends
3) Expenses incurred in the quarter

These are nett figures and my managment summary from my accountant can give the total sales.
The questions are
1) Will the home office consider my total sales value with VAT amount for the earnings or will it add only the amounts transferred from my business bank a/c to personal bank a/c (nett figures)
2) Can the expenses also be a part of the total income figure calculated by home office
3) Do i have to submit all my business bank statements for last 12 months and also my personal bank statements for the last 12 months.
4)Can i add my income from my permanent job before tax to the sales figure to get the total income figure.

Please give me some advise on the above and i appreicate your help. Thanks a lot in advance.

Thanks,
Hiren

[MyHSMPApplication]

Hi Hiren,

1) Will the home office consider my total sales value with VAT amount for the earnings or will it add only the amounts transferred from my business bank a/c to personal bank a/c (nett figures)

There are two aspects to this:

a) Have you decided to retain the earnings in your business (I guess not as your are drawing dividends)? If yes then the answer to the question will be partially Yes. They will consider the total profits of your company and from there they will calculate your share (based on the number of directors / share holders)
However if you have withdrawn your earning as dividends then they will only consider the Gross Salary and net dividends + your Tax Credits to arrive at your earnings.

2) Can the expenses also be a part of the total income figure calculated by home office

Reimbursed expenses are not considered as earnings! So you can simple leave them out!

3) Do i have to submit all my business bank statements for last 12 months and also my personal bank statements for the last 12 months.

You will have to provide 2 sets of evidence for your earnings. Say for your employment period, you can provide those payslips along with your personal bank statements. and for your self-employed period, you will have to produce your payslips and bank statements to prove your salary and Dividend vouchers and bank statements for your dividends.

4)Can i add my income from my permanent job before tax to the sales figure to get the total income figure.

When ever we talk about income it is always the gross income i.e. Net salary + tax deductions! or Net dividends + Tax Credits


The explanation is a bit confusing however, if you go through the guideline document, it makes it simpler.

Cheers
PG

[hshah]

Thanks for the reply but i am still not very clear
Confusion is that for example

Gross sales is 10000
VAT paid is 1500
Corporation tax is 1300
Gross salary is 2500
PAYE tax is 200
dividends is 2700
Expenses are 2000

The the amount the home office takes into consideration is 1500+1300+2500+2700= 8000 Am i correct??
If yes, then my accountant letter will show all the above
However in my personal bank statement, there will be entry for only dividends(2700), nett salary(2300), expenses(2000)
The business bank statements will have all the details

The confusion i have is that i will submit accountant letter + business bank account stmt +invoices +remittance advise from my agency + dividend vouchers
which will all match But my personal bank account will have entries for only dividend and nett salary and expenses
IS this OK and will this not cause any confusion ?
Do i have to submit anything from the HMRC regarding my VAT returns or PAYE returns ?

Also i do transactions from my business bank a/c to personal bank account only every quarter and not on a monthly basis. Will this cause any confusion? I have quarterly payslips and quarterly dividend vouchers

Sorry for the long explanation but i could not explain without giving example. Thanks again for ur help.

Thanks,
Hiren

[MyHSMPApplication]

Gross sales is 10000
VAT paid is 1500
Corporation tax is 1300
Gross salary is 2500
PAYE tax is 200
dividends is 2700
Expenses are 2000

The the amount the home office takes into consideration is 1500+1300+2500+2700= 8000 Am i correct??
If yes, then my accountant letter will show all the above
However in my personal bank statement, there will be entry for only dividends(2700), nett salary(2300), expenses(2000)

VAT / Corporation tax etc are something that your company pays. You can simple leave out your VAT and Corporation tax amount i.e. you leave 1500 + 1300 straight away. This means you can claim only your gross salary i.e. 2500 + Net Dividends i.e. 2700 + Tax credit on your net dividends i.e. generally (2700 * 100 /90) - 2700.

So a total of 5500 GBP you can claim

For this you will have to produce 2 document from different sources.
For salary you can produce your payslips or letter from accountant along with bank statement and for dividends you can produce dividend voucher or letter from accountant along with your bank statement.

Also i do transactions from my business bank a/c to personal bank account only every quarter and not on a monthly basis. Will this cause any confusion? I have quarterly payslips and quarterly dividend vouchers

This should not be a problem as long as you can prove it with documentary evidence. it doesn't matter if you pay yourself quarterly / monthly or annually.


Hope this clears your queries.

Cheers
PG

[hshah]

Thanks a lot PG.
U have answered most of my questions.
But i am in a dilemma now as i have showed more money in the expenses which i cannot claim to get the magic figure for the HMSP.
I have surplus funds in my business bank account however.
My first question is can i not issue a bonus or additional dividend (which one is prefereable)to myself from my business bank account with a lumpsum amount ?

I still have one quarter Jan-feb-march before my application and i will cut down my expenses shown drastically, increase my salary a little bit but mostly claim a bigger dividend value.
Is this OK ?

The other query is do i need to submit my invoices, remittance advice from my agency, business bank account stmts.

Thnaks again for the timely help. If i had not got this answer, i would have continued to do what i have been doing and then fall short of the magic figure.

Thanks,
Hiren

[Abi2009]

can i not issue a bonus or additional dividend (which one is prefereable)to myself from my business bank account with a lumpsum amount ?

Yes, You can.

Whether you want to pay yourself Bonus or dividend depends on how you want to pay tax for this amount.

For income tax, Bonus is considered like salary.
Whereas Dividend attracts dividend tax.

I think Dividend has some tax advantage. You can visit Contractor websites to calculate the taxes.

[Abi2009]

The other query is do i need to submit my invoices, remittance advice from my agency, business bank account stmts.

If you declare yourself as 'Employed', then you need to produce Payslips, Dividend Vouchers, and your Personal Bank Statements.

If you declare as 'Self Employed', then you need to produce your company incorpoation document, contracts, invoices, and Business Bank statements. If you have corporation tax returns, I feel it is better to attch, which will clearly prove your income. You also need to show that you are 100% shareholder of the company, if you wish to claim full credit for all the income company made.

[hshah]

Thanks for ur reply.
I am sorry but now i am more confused.
What should i declare myself, employed or self employed.

I am the 100% shareholder of my company.But how do i prove this ?
If i declare myself as self employed, then is there any advantage over declaring myself as employed.. Now i understand the docs required to submit if i am employed as PG has mentioned in his replies.

But will my income be more if i declare myself as self employed.
Will the home office take into account the VAT and corporation tax as well.
Pls advise.

[Abi2009]

Thanks for ur reply.
Will the home office take into account the VAT and corporation tax as well.
Pls advise.

VAT will not be considered as your company's income.

For the purpose of your company's income gross income will need be considered, which means before tax.

[sanram]

Can someone answer me please...


My brother wants to apply on 10 th march 09( tier 1)......and he wants to claim 12 months earning from 1st jan 2008 till 25th dec 2008....will that be ok??

Also what is the last date for him to apply in March to claim tht earning (jan -dec)

[sanram]

anyone? :S