Hoping I can get some advice from the bookkeepers in practice here with regard to a Ltd Company.
Firstly the company has been running for four years without ever having had an accountant. The directors have kept ins and outs on a spreadsheet and made up the accounts just dealing with things as they think they should. I've taken over as the bookkeeper and think there are a few problems with regard to how motor expenses, VAT, shares and use of home have been dealt with in the accounts.
1 The directors introduced new capital into the business but didn't complete any paper work to record the issue of new shares. I posted the transactions to share capital (shares issued) but surely the paper work must be dealt with?
2 The directors have been claiming all car related costs as motor expenses. The cars belong to them not the business. Shoud it be mileage allowance instead? In addition to this they have been claiming back the VAT on the petrol. Is this right? Would it be easier to put the cars on the balance sheet and continue this way?
3 Use of home - can directors claim use of home?
4 They do not keep proper receipts but ask that everything is put through the accounts anyway. Shoud I do this?
5 Should they have a valid VAT receipt for all input VAT claimed or is bank/cc statement enough?
I might be able to help with a few items but not all of it.
We have cars that the company lease and we claim the VAT on fuel. As the cars are available for private use we also have to pay a fuel scale charge element on to the VAT return (this information can be fournd on the HMRC website). You have to know the CO2 of the vehicles involved. If the cars are owned privately then you can still claim the VAT but there should be a VAT receipt to back this up. Some of our guys do put in a mileage charges if they use their own cars for company business. Again I think the rate allowed by HMRC is around 45p per mile.
You need to have receipts to back up VAT claimed. If you get a VAT visit which we do you may be made to prove the claim.
Any of the more experience people on this forum may be able to help you further and confirm if what I have said is in fact correct.
Elaines sorted the car question (generally it ends up as 45p/25p plus parking).
on the capital introduced front that doesn't mean that new shares have been issued.
New capital can be added to the directors loan account putting it in credit. Things only get complicated if the director tries to charge interest on their loan to the company.
Yes, directors can claim use of the home. I generally put that down as heat and light and credit to the DLA.
They have to keep receipts and realise that even though they own the company they only own it in the same way that a parent owns a child. The child / company has rights and the parent / dorector has a fiduciary duty of care.
Every penny taken from the company must be justified and recorded.
Yes, they need VAT receipts for everything that they recalim VAT on and must breakdown the VAT properly on all of their invoices.
HTH,
kind regards,
Shaun.
__________________
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.
1. Yes need to complete form to be submitted to Companies House (SH1) and update the register. Also the issue of whether the shares where issued at par or premium. May be that all the capital introduced isnt share capital and some is directors loan
2. Yes should only be claiming mileage allowance if they own the cars personally. If they put through more than this then will taxed on this. Rate is 45p for first 10k business mileage and 25p thereafter per year. Can claim VAT at the fuel advisory rate. See the following link http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm. You could put the cars on balance sheet but then the cars would need to be owned by the company. If the directors then used the cars personally there would be a benefit in kind on the car and fuel use. Generally nowadays you are better of just keeping the cars out of the business and claim the mileage
3. Yes, but has to be justifiable and backed up with supporting documentation.
4. Should only put through where have valid receipts and invoices made out to the company. What would their answer be if HMRC made a visit and asked to see receipts invoices to support certain expenditure. They might let the odd small thing away but not if it is systematic.
5. Yes need valid VAT receipt to claim back VAT. Again if HMRC made a VAT visit how could they support a claim for VAT based on what is on the bank statement.
Hopefully HMRC dont read this forum or they will have a field day if they can find your employers.
Directors own car paid for petrol himself all year - claim mileage
DR motor exp and CR directors acc
To claim back
DR directors account credit bank
If claiming VAT on fuel
Dr motor exp with mileage amount - VAT figure (mileage amount x VAT fraction)
Dr vat with vat figure
CR Direc Acc with full amount
To claim back Dr Direct Acc
CR bank
As it stands at the moment all motor and petrol costs have been paid through the business bank or credit card account and vat debited to vat account. So I will need to reverse all of these transactions and debit the directors account and then put through the above journals. Is this correct?
So for instance if its a petrol car with less than 1400 cc the fuel advisory rate is 15p per mile. Although you can claim 45p per mile only 15p relates to fuel. The rest is for wear and tear, insurance, MOT etc of the car.
So say you claim 1000 miles the entry would be
Dr Motor Exps £450 (45p x 1000 miles)
Cr Directors Loan £450
You can claim VAT on 15p. So that is 2.5p (15p/6) per mile. Journal to adjust for this is
Dr VAT £25 (2.5p x 1000 miles)
Cr Motor Exps £25
You of course need to have sufficient fuel receipts to prove the fuel cost. That is you need to have at least £150 (15p x 1000 miles) fuel receipts
The net journal is
Dr Motor Exps £425
Dr VAT £25
Cr Directors Loan £450
The directors loan can be drawn down as cash flow permits.
