Ok - These can be genuine payments that are going through the bank account with no receipts, OR a very disorganised retail type business with cash payments that they have lost control/records of, OR someone trying to be 'fly' (e.g., someone paying staff cash in hand, making purchases on the black etc etc) and thinking they have saved money (NIC/More expensive goods etc etc.).
Now, no receipt/invoice.....no transaction. BUT is there any other way to deal with these scenarios other than lumping it all to drawings/DLA? For example, could these be treated as sundry expenses and not allowable for tax purposes? Do the payments showing on the bank account merit being treated in a more lenient way than the 'missing'/'fly' payments or is there really no other way rather than the drawings/DLA route?
I'm sure this happens all the time.....in my experience of annual 'shoebox' accounts, it is possibly close to 100% of the time so I am sure everyone on this forum deals with this often. But........what if these missing monies/receipts are of a VERY material nature??? A few hundred quid here and there soon mounts up!!
I always think that if you have a bank transaction - with or without an invoice/receipt then this would be enough to convince the Revenue not to put it before a Tribunal on it's own merits. And yes, this crops up all the time.
Don't misrepresent these expenses by placing them in Sundries, but stick by your guns if you believe they're an allowable deduction. This isn't so difficult given that the standard of proof is in the balance of probabilities rather than beyond reasonable doubt.
If it is clear on the bank statement - i.e. Staples Debit - but no receipt, then like Tim says, IF challenged by HMRC, you could probably get a duplicate etc, so putting this through in it's correct place may not be such a big deal - however, the one thing I would never do is claim back VAT without a receipt. I am pretty strict on that, no receipt, no VAT reclaim......it covers my own back.
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Carol Saunders Lady of Ledger Book Keeping Telford, Shropshire
If it is clear on the bank statement - i.e. Staples Debit - but no receipt, then like Tim says, IF challenged by HMRC, you could probably get a duplicate etc, so putting this through in it's correct place may not be such a big deal - however, the one thing I would never do is claim back VAT without a receipt. I am pretty strict on that, no receipt, no VAT reclaim......it covers my own back.
This is a really interesting subject and it has recently dawned on me that it needn't have been so controversial.
Although in this particular case Richard has a desk covered with receipts, many times I have completed VAT Returns without seeing a single one. It merely depends on what you're being engaged to do. If a client hands over their own bookkeeping with VAT entered, then whilst protecting them from themselves and making sensible queries, it's basically their look-out if they're claiming for golf lessons and either calling it something else or insisting on claiming.
It is a bit of a step between doing the bookkeeping for a client and accepting/using the accounts provided by the client to provide year end account and tax returns. I am really interested in the latter and have no experience of working in a practice.......I have oversaw around fifty audits, but then this query relates to sole traders and SME Ltd companies requiring no audit. It may well be an experience thing where these practices know what to do when simply provided with a cash book (e.g., they may be able to build a trial balance and simply ask to see the last bank account statement and invoices greater than the value of 'x').
At the end of the day, there are certain qualifications like for example 'from all available records' and also the fact that, as you say, the client/directors are responsible for their own accounts and records.
For those that are already preparing final accounts and tax returns but charge a bookkeeping rate where necessary......I wonder what the main reasons are and perennial problems for extra bookkeeping work and fees being necessary.
Incidentally, not related to the original query but I have taken on a client recently who records everything in Excel using the various bank statement downloads. VAT is allocated by calculation (I am not sure they will all actually be at standard rate) and there is a category allocated. Receipts and invoices may well be available, but they are not used to book a transaction, not referenced or kept in any organised way. I would like to change this for everyones sake, but it doesn't seem to have been a problem for their year end accountants to now! In fact the cash flow model sent by the accountants (which the client hasn't used yet) does not include a running total and neither does it include a VAT column! I may be showing a lack of experience (as mentioned above), but if their accountant sent me this, I would want to go through the invoices and receipts to account for VAT and also go through the bank statements to verify the entries and balance. This is obviously time consuming and not always possible to do 100% (back to not all invoice available).......so what to do!!??
I've never done an audit, but I imagine the auditors' primary concern is that the balances on the B/S, and the income & expenditure in the P&L, are correct. They will verify the invoices when checking the purchases/creditors figures and will satisfy themselves that total postings to the VAT A/c each month agree with the VAT charged on the invoices for the same period and amount to 20%. They will then look for corresponding figures on the VAT Returns. Absent any alarming difference, I suppose they will consider this a satisfactory check without scrutinising the invoices again.
I also agree that a bank statement can provide prima facie evidence that a transaction took place which the Revenue should accept unless there is reason for them to believe it related to something else, and as Carol says, you can always ask the other party to the transaction for copies of their records.
unless we're talking about a few high value items audits are generally done on samples rather than a whole population.
An auditor would not look at every VAT invoice but they would look at enough to satisfy themselves that the entities controls were working effectively so convince themselves that sufficient appropriate evidence existed to give reasonable assurance that the account balances were not materially mistated.
Audit is one of those areas that I find really interesting but I would personally not become an auditor as its a complete litigous nightmare.
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.
Audit is one of those areas that I find really interesting but I would personally not become an auditor as its a complete litigous nightmare.
I thought I was off my head and people think I'm being sarcastic when I say I enjoy filling in forms - but to find audits interesting - that's got to be a wind up.
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Never buy black socks from a normal shop. They shaft you every time.
I think that the box ticking at lower levels would drive me crazy but the approach of professional scepticism towards a clients books and records to see where fraud or error may have occured, including clients using innapropriate accounting standards or attempting to alter figures by earnings management.
Well, thats got me written all over it.
I actually find that side of things more interesting than tax which frustrates the hell out of me that you basically need to relearn tax each finance act where changes in audit and accounting standards are slower (and better thought out).
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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.
Hi Richard, there's quite a lot in there so I'll tackle it piecemeal.
Count1314 wrote:
Absolutely Don
It is a bit of a step between doing the bookkeeping for a client and accepting/using the accounts provided by the client to provide year end account and tax returns. I am really interested in the latter and have no experience of working in a practice.......I have oversaw around fifty audits, but then this query relates to sole traders and SME Ltd companies requiring no audit.
It's a big step and I often feel more comfortable if I've got my hands on the prime documents. Sometimes you know the bookkeeper/director and trust the records implicitly but with the one-man-bands there can be an element of re-doing the donkey work even when they've supplied you with bookkeeping. I'd rather spend a couple of extra hours than be uncomfortable submitting the final accounts.
It may well be an experience thing where these practices know what to do when simply provided with a cash book (e.g., they may be able to build a trial balance and simply ask to see the last bank account statement and invoices greater than the value of 'x').
Well you could include any capital items and loan agreements in your annual request letter along with bank statements, sales invoices, copy VAT account and returns. It would seem easier to ask for all the invoices and extract big/interesting ones yourself but yes your client below should keep all their invoices in date order.
At the end of the day, there are certain qualifications like for example 'from all available records' and also the fact that, as you say, the client/directors are responsible for their own accounts and records. For those that are already preparing final accounts and tax returns but charge a bookkeeping rate where necessary......I wonder what the main reasons are and perennial problems for extra bookkeeping work and fees being necessary.Off the top of my head : Illegible writing - overdrawn cash account - missing sales - insufficient drawings - unjustifiable expenses. Your letter of engagement will set out what you expect and when and any standard letters you send will further cover your hide.
Incidentally, not related to the original query but I have taken on a client recently who records everything in Excel using the various bank statement downloads. VAT is allocated by calculation (I am not sure they will all actually be at standard rate) and there is a category allocated. Receipts and invoices may well be available, but they are not used to book a transaction, not referenced or kept in any organised way. I would like to change this for everyones sake, but it doesn't seem to have been a problem for their year end accountants to now!
In fact the cash flow model sent by the accountants (which the client hasn't used yet) does not include a running total and neither does it include a VAT column! I may be showing a lack of experience (as mentioned above), but if their accountant sent me this, I would want to go through the invoices and receipts to account for VAT and also go through the bank statements to verify the entries and balance. This is obviously time consuming and not always possible to do 100% (back to not all invoice available).......so what to do!!??
You could ask the accountants but as there's nowhere to enter the VAT then presumably they don't want you to. Just follow the model if you can then you wouldn't be out of pocket with the time spent.
