Readers’ forum: Hush money

I have just completed the quarterly management accounts for a limited company which made a big loss due to the coronavirus pandemic. The business was supported by a substantial capital introduction from the sole director and shareholder. From previous experience I knew he was short of money so asked where these funds had come from.

My client was honest and said that he had been romantically involved with a high-profile married celebrity. The affair had ended and she was paying him a large amount of money in monthly instalments over the next two years and he had agreed not to reveal publicly any details of the affair either on social media or to any local or national press. I understand that there are no contracts involved.

My concern is tax and VAT. The receipts will exceed the VAT registration threshold after the ninth month and I wonder...