I wonder if you can help, but bit of a long one I'm afraid!
I have been bookkeeping for a client who owns and runs a garage and took over this part of the way through the year (year ended 31 March 2011). I am now finalising the accounts. Previous years accounts were done by a chartered accountants and they did not report any professional reasons for me not to undertake the work
Anyway, there was a large transaction of £20,000 paid by cheque to a company called Clayton Caravan. The previous bookkeeper had just posted to a separate nominal code with that heading and client says it is for a large item of garage equipment. The problem is that there is no invoice and he says it got lost but I can't help being suspicious as I know he has a caravan as his partner who works in the office talks about going there.
He also pays subcontractors cash of £150 per week and there is never an invoice (although I know this must be right as only one employee on the payroll and there is also another guy working there some days).
I have told him of the risks if he gets investigated, not having these invoices etc but I don't know what to do as I am doing his accounts and self assessment (he is a sole trader).
I am more suspicious now because he has paid a cheque this month to a company called ATV adventure and he said that was for equipment too but the invoice has disappeared too! I googled it and there is an adventure holiday company of that name so this has made me more suspicious!
With the caravan, I would suggest if he cannot provide an invoice, or a reasonable explanation that would allow you to get a duplicate invoice, then it should go in the accounts as drawings.
The same with ATV. As a sole trader he can pay his personal expenses from any account, including the business account, but it must be shown as drawings.
I think I would explain that as far a you are concerned, such large value transactions would require an invoice, so that you as the bookkeeper are satisfied that you are complying with MLR.
You have also not said if your client is VAT registered, and trying to claim the VAT
Thanks for your advice Bill and Kris, you have been most helpful.
I am going to press him again for a copy invoice. He is vat registered but the vat has not been claimed so we are ok there. I will tell him it will have to go to drawings if he can't produce an invoice and see what he says..
I worked for a company who used sub-subcontractors and they made out to the main contractor that they were employees of the company. However they were paying them as subcontractors to dodge employers NI. The company made its own subcontractor invoices and pretended it was from the subcontractor.
I'm not sure. The subcontractor (who had been told by the company to get a UTR number without any experience of being self employed) were treated the same as employees and were not told about any of this going on in the background. These people were told that they could dodge NI when in actual fact they couldn't. For self billing don't you need to come to an agreement with the supplier? There were also no signed agreements in place. All the subcontractors knew is that they were paid a weekly wage the same as everyone else but by cash.
The £20k payment would need to be verified by a receipt/invoice - because of the amount, the Revenue would jump all over it and £5k tax or more too with possible prison sentence!
The subcontractors appear not to be - they are employees. It's a simple test which can be found on HMRC's web site and is used by companies to dodge paying Employers NIC's. The test can be found here http://www.hmrc.gov.uk/employment-status/index.htm#1 also, anyone working on a self-employed basis should present their own invoices to the customer for payment - it's part and parcel of their own accounts work otherwise how would they know their income?
It is apparent your client is using business money to pay for his own purchases and, if a sole trader, these should be shown as drawings and he pays the tax/NI appropriately on his net profit. If he is a Ltd company, then the consequences of his actions could be even more severe, possibly leading to striking off as a Director and prosecution. The money in a Ltd company does not belong to the directors, it belongs to the company and the shareholders who receive a dividend from the net profit after tax has been paid. This £20k and the adventure holiday should be posted to his directors current account and, if overdrawn, he pays the tax on it.
This guy seems to be shirking his responsibilities and I wonder if a mention to SOCA is in order?
-- Edited by Anderson Accountancy on Wednesday 31st of August 2011 01:52:04 PM
I am not comfortable about the whole thing and I am going out next week to see him to address both issues, if I am not satisfied then I will have to consider what actions I will take next.
Sometimes a good way to part company can be to make out a short statement for the client to sign, saying "I confirm the £20,000 was for equipment". If he doesn't want to sign, then, at a stretch, the business relationship might even continue. best wishes, Tim
I think he might sign such a statement but would this cover me legally if there was an investigation?
Also worried that over £10,000 left in 'cash' I had to allocate to cost of sales as there were no invoices for some parts and subcontractors fees as I said previously. The gross profit % works out almost perfectly in comparison to the previous year and client said the previous accountant had done the same (a firm of chartered accountants too!). If I also drew up a statement about this cash allocation too, would I be covered?
I know that it is his responsibility but then if I got audited I don't know where I would stand?
You definately should make a SOCA report, and that will cover you if there was an investigation. Also as Tony says - although I would write a letter to the ICB (your ML body), explaining your concerns. All this will show that you did everything reasonable, and then you will not be liable. There is a possibility that the previous accountant had also completed a SOCA report, as they do not have you tell you if they did.
At the end of the day, you have to earn a living and work on the instructions of your client. To make sure that you aren't liable, complete a SOCA report and show that you did everything you reasonably could by consulting the ICB for the record.
Great advice from Bill, David, Tony, Frauke and everyone. I've put it like this before "I'd be unable to defend you, and it's quite likely you'd be investigated. I honestly don't recommend you carry on like this......caravan........sub-contractors .......ATV........ ".
At the end of the day, the risk is his, and he might be content for you to submit his return(s) without your signature on a balance sheet.
I will hopefully know more where I stand on Wednesday with it all when I have had my meeting with the client. I will then speak to ICB and go from there.
the way i normally deal with purchases which there is no invoice and is clearly a private expense i normally post it to drawings for sole trader or with limited companies i post it to the directors loan account. as for sub contractors i also had a company that did not have invoices from the sub contractors and the way i was told to handle this by the accountants was to post the payments to the directors loan account and that the director would pay tax etc if he could not provide invoices but you should also warn the business owner that in the event of an inspection they could well impose fines/penalties etc
