I have done my own Ltd company accounts for a number of years, have taken some exams and now offering bookkeeping services.
I have secured my first customer in this field, yippee, but have got first time jitters!
The customer is a limited company providing management consultancy services. There is a long list of expenses submitted each month. Most of these are attributed to the activity of consultancy and consisit of mileage, meals, hotel, parking etc.
The owner has said these expenses should be included under Cost of Sales. What do you think? Within sage, would this be within 5000, or 6000 range of accounts?
The expenses are also payable with the salary. What is the best way to deal with the posting of the expenses.
I would really appreciate some advice on this matter.
I would put most of your client's expenses under the 7000 series (overhead expenses) as your client runs a service business so cost of sales is not applicable (as I see it!). Again, salary (the gross) as well as the employers' NI should be placed in the 7000 range as they are costs to the company.
Also, the employee's net wages, PAYE (tax) and NI should be added to the 2200 range.
I understand that generally this type of business would have no cost of sales as it is a service provider, however the account has asked for them to be put under cost of sales and hence my confusion.
In some respects I can understand as these expenses will increase or decrease depending on how the sales are doing and are therefore directly attributeable to a sale.
If the accountant has asked you to post under cost of sales then do that. Rename codes in the 5000 area to reflect the expense. It may even be an IR35 case but just do as the accountant instructs in this instance. Ordinarily I would have posted under expenses though.
Sorry Jinny. Forgot to add that the 2200 entries for employees' net wages, PAYE and NI should be credited as they are classed as liabilities, so for example
DR Gross wages (7000) £1528.00 DR Employers' NI (7006) £174.25 CR Net wages (2200) £1146.00 CR PAYE (2210) £251.00 CR Employee's NI (2211) £305.25
and of course the total debits must equal the total credits!
sorry, missed this one yesterday as was a bit busy.
The client is correct and even if they are caught by IR35 travel and subsistence within the two year rule are legitimate expenses so as its a service business cost of sales.
The main thing that IR35 comes down strong on is dividends but other legitimate expenses such as stationary, computer, books, training, accountants and bookkeepers fee's etc must come within the 5% of turnover which is the allowable maximum for other expenses under IR35.
The one expense on your list that I would have a problem with is meals and certainly I wouldn't put those through as an expense.
I appreciate that there is a minimal daily allowance but I suspect that the cost of the meals goes well beyond that.
The revenues argument for people claiming meals when living out of a suitcase is that such is not incurred wholly and necessarily for the contract in that these are costs that would have been born anyway by the client had they not been on contract.
Hotels, parking, mileage allowance are allowable expenses but ask to see the clients mileage log. The revenue will if ever they visit!
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
You also need to cr employers' NI to 2211, although now with no having to put NI and PAYE separate when paying over to HMRC Paye and NI can go in one liability account.
