Hi all, I'm new to the forum. I've been book keeping for a small family run company that I work for, along with a lot of other tasks, for a few years now but have come up against a problem.
The company was set up by my Mother in Law many years ago and from what I can gather, she was always quite careful about making sure everything was done by the book and was quite frugal. This has continued until recently but now she seems to have started making quite a few personal purchases on the company debit card that I don't think can be justified. She has always payed herself a relatively low wage and had the benefit of the company paying her energy bills, any garden bills (this is the nature of the business) and any other odds and ends that could reasonably be justified as business expenses. Now though, she just seems to buy anything she feels like on the company debit card. New TV and TV stand for her lounge, meals out and now even her weekly food shop.
There are two problems I have with this:
1) I don't think it's right. She, apparently intends to hand the business over to her daughter (my wife) and her son at some point, so I do have an interest in how the company performs. The cashflow situation is usually OK, if a little tight at times and it does bother me when occasions arise that something cannot be paid for, or overdraft charges are incurred when I know that she's just paid £600 for a TV. She is way too sensitive for me to bring this up with her and she would simply rant on about having set the business up all those years ago and why shouldn't she enjoy the benefits now. She has talked in the past about giving herself a pay rise, but the company just can't afford it. I would like to just give up any interest in the company and do the book keeping and let her do what she wants. Then, if the company does go down the pan I can just walk away. However, my wife would not want to do this. She thinks the company is a good one and would like to take it on when the time comes. She knows about the spending issue but again, does not feel able to speak to her mother about it. So, basically, is what she's doing justifiable or do I have a right to be aggrieved?
2) The more immediate problem of how to put these receipts through quick books. I can't put them down truthfully as they aren't business expenses so how should I show them? She claims (thanks to something an accountant once mentioned about a maximum amount of dividends she could take) that the company owes her £9000 (that is doesn't have) so just tells me to put it as dividends. Is that doable, or legal? If so, how?
Thank you in advance for any advice. As you are probably aware, family businesses are different beasts to normal ones and it can make life very difficult when somebody is not doing what they should. If it were not linked to my wife, I wouldn't care what went on, as long as I was paid.
is this a limited company or Sole trader business model?
The items purchased through the company for own use as you state are not justifiable expenditure.
If this is a limited company you may wish to bulk up the expenditure and issue an end of period dividend for that amount.
another alternative is to put them to the directors loan account.
A third alterntive is for the director to reimburse the company for the expenditure on personal items.
If a sole trader then these items go straight to drawings.
No matter how it's worked the owner has taken revenue out of the entity for personal use so such is regarded as part of their remuneration and one way or another they will be liable for person tax on it.
Hate it when owners use their business as personal piggy banks. However, as noted above this is nothing that cannot be put right theough the books relatively simply.
kind regards,
Shaun.
P.S. I don't think that the energy bills and garden expenses are actually as cut and dried as you assume! There should surely be some percentage allocation for personal use attached to that.
P.S.2 just reread your original post and spotted the director bit so appologies about asking what the business model was. It's obviously a limited company or LLP. As such, of the above suggestions by far the most comon is to chuck these things straight to the DLA which for all I know may be positive and she's just taking some of her equity back out of the company again?
-- Edited by Shamus on Thursday 5th of May 2011 12:37:10 PM
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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.
Definitely put them to the Directors loan. I get the impression that it is just the bookkeeping you are doing so if you 'dump' them in the directors loan and ask the accountant to explain the reasons why they cannot be claimed.
One of your other points about having a vested future interest is almost irrelevant - after all it is her company she can extract the money as and when she likes, as long as she pays the correct taxes of course!
It is very difficult working with friends and family!
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I would go even further than you and say that it's completely irrelevant.
Sort of thing that I've seen before dangled by ageing relatives in front of next of kin who really don't realise that it's more akin to being given care of a child than an asset such as a house.
And as for leaving a company to two children.... Maybe it would be wise for Matthew to read King Lear!
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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.
Thanks for the advice. It is indeed a limited company.
I take your point about the irrelevance of the future interest and, as I said, would be perfectly happy to let her send the whole thing down the toilet, but for the fact that my wife will be expected (and will oblige!) to take the business on in the next few years. I hate that sense of obligation that has been put there but it's there, and although my wife says she doesn't feel obliged, I know she does. I therefore feel that as we are going to be expected to take on the business, (that could indeed be a profitable one, were it not for all the pilfering going on) it ought to be handed over in as good a position as possible.
The current owner still labours under the illusion that she is paid very little by the business and cannot understand how much extra income she is receiving through all her bills being paid. (She even claims all her motor expenses through the business, on a private car, and can't be bothered to keep mileage records!) The energy/garden expenses thing is actually also something I'm not 100% pleased about and I fully agree that it ought to be apportioned correctly. This is something that has been going on from way way before I got involved though and it would not be possible for me to change it.
Anyway, enough of the emotional side of things! I like the idea of dumping all of this in Directors Loan and letting the accountant deal with it afterwards.
Am I right in asssuming it is her own business? Surely if she has made a profit then reserves are available. As an owner, if she has earned the money then surely she can take the money out of her company? You said that it was the company debit card so presumably it is only coming out of these available funds.
When your wife takes over she will have a profitable business to maintain and it will generate its own cash.
Is there an issue of profits vs cashflow?
On another point, it sounds like the car is a problem and should be a benefit in kind issue there.
__________________
Phil Hendy, The Accountancy Mentor
Are you thinking of setting up your own practice or have you set up and need some help?
If so a mentor may be the way forward - feel free to get in touch and see how I can assist you.
