I have just had a meeting with a new client and he has some business processes with his bank account which raised a couple of questions.
He works 95% with cash and does not bank his takings daily. He takes them home, check the amounts against the till z totals and when he has a larger sum he banks them into a personal account. He then transfer the amount through internet banking into his business account, thus not incurring any bank charges.
Is this a common business practice? He is a VAT registered limited company but he said that the bank manager actually suggested this to him to avoid bank charges.
My concern is that he takes the money home, and that his business account shows a transfer not a cash receipt.
I would not be comfortable with this at all! He should bank into his business account and not into his personal account and then making a transfer - he is opening himself up to alot of trouble and investigation, in my view. And the bank are so wrong to advise this kind of practice.
The views expressed in this post are my own personal (HRA protected) views, and are not representative of any organisation I have any involvement with.
It's very difficult to change behavioural patterns that have developed over time, especially if he believes it is in his best interest and that he's doing nothing wrong.
You could suggest that he changes his bank account to one that offers free banking, or tell him by having all his business transactions in one account it will make his affairs simpler, thus his bookkeeping cheaper. You can tell him it will cause less concern if he has a visit from HMRC.
Ultimately you wont be able to force him, eventually you need to decide whether this is something you can work with, or walk away.
The views expressed in this post are my own personal (HRA protected) views, and are not representative of any organisation I have any involvement with.
Thanks for all your advice. I have another meeting with him on Wednesday when I will dig a little deeper and see if there are any peculiar business practices.
I hope I will be able to change the way he works on some things as he does keep saying he understands that accurate bookkeeping is important!
I would suggest to him that as the company is a separate legal entity he should bank the cash in his business account as otherwise HMRC are likely to draw an assumptions that he is not banking all takings (just because they match the 'z' reading doesn't mean he has rung up all sales). HMRC can quite easily come up with an assessment of 'true' turnover and then unless he can prove otherwise he will be liable for VAT, Corporation Tax, fines and interest. Ok this is quite alarmist but HMRC are currently looking for 'easy' money. I would suggest this is a possibility and then to cover yourself write to him with the suggestions keeping a copy of the letter on file.
Personally I would be cautious of saying anything, as it is your clients choice to run his business the way he sees fit.
I would just advise him that it is not a good practice and keep my eye on it. Unless you suspect that there is something sinister in why he is doing it, in which case you have a suspicion and should be reporting it.
if he had been a sole trader then he wouldn't be doing anything wrong per se, just like you say not good practise and doesn't give hmrc confidence in the processes.
