Why did the client not use their bank to cash the cheque?
What was the business reasoning behind cashing the cheque in that way.
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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.
I've claimed them in the past. It was for a subbie who was paid by cheque but he didn't have a bank account (apparently)...maybe he had been declared bankrupt? Anyway it was a cheque for the services he had provided rather than birthday money from his auntie so I considered it a legitimate (if exorbitant) business expense and I would have been happy to argue that case in front of the commissioners. But as Shaun correctly says, you need to know the exact circumstances.
Poor keeping of his current bank account meaning he was constantly getting 'unpaid transaction fees' therefore any payments put in would be taken from the bank instantly.
But not putting the money in is going to win him interest on the charges already levied plus a regular account charge to review his account.
Simply burying his head in the sand and using other sources to get money is creating greater problems further down the line.
He needs with some urgency to talk to the bank to sort out a repayment plan, perhaps a temporary overdraft, maybe a secured personal loan (bank may be adverse to giving a business one).
When looking at clients finances you can generally see that they are getting onto a downwards spiral well before they do which gives them chance to sort out their finances whilst they still can.
Remember the acronym BEAN (helps I suppose that we are referred to as bean counters).
B - Borrowing facilities not agreed
E - Excessive reliance on short term borrowing
A - Adverse key ratio's
N - Negative operating cashflows.
Get all four of those and the client needs to consider whether pushing forwards with the business is simply wishful thinking.
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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.
Sorry about this but before giving an answer to that one could you just confirm a couple of things.
1) Is the client self employed or a limited company.
2) Was the cheque to the business for work done by the business. (The assumption implied in the above answers is that such was the case).
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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.
I would say that the charges incurred in cashing the cheque would not be allowable as such did not have business reasoning behind it. Quite the opposit, the act of cashing the cheques privately is effectively costing the business money.
strange as it may sound, even though the interest and bank charges could have been reduced had the client banked the money where they should the actual bank charges for the business remain an allowable expense of the business.
Although, as such charges were avoidable within the normal course of business if the cheque had been banked correctly, HMRC may challenge that view.
For now I would however continue to treat all bank charges as business expenses and the cashing of the cheque as private.
All in all though the whole situation sounds like its a mess and if I saw this with one of my own clients I would be ensuring that I got my own fee's paid up front.
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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.
Haha, very true. Many thanks for your advise.
My thoughts regards the situation is that the fees could quite easily be avoided if he took better care of his finances, it's just nice to get a bit of back up from more experienced people.
How can the commissions be negative? Is there a fixed element to each sale that if the sale does not reach x amount insufficient commission has been earned to cover the associated cost?
If thats the case then isn't the issue that the fixed cost should be a cost of sale rather than being netted off at source against the commission?
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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.
so would the two not be revenue and cost of sales rather than only netted revenue reported.
Personally in that scenario I would go with losses being a cost of sale.
Actually, I wouldn't go with either as I would not work with the providers or promoters of gambling services which I think are a real scourge on society. But, from a theory perspective, cost of sale.
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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.
Just out of interest. HMRC don't allow losses on gambling as a business expense so how can they be claimed as a cost of sale? If client is using their business to attempt to make money in this way* then I would consider nett profits over the year as revenue and if a loss non reclaimable. Would that be right or wrong?
Personally I would create a separate income category, and if negative at end of year journal from drawings to zero it. Profit treated as either commission or investment income.
As an aside, if the business was VAT registered would the nett profit on gambling also be liable to VAT?
* I'm thinking more in terms of betting exchanges where it is possible to make money on losing outcomes, not chucking away money on the rag that was bet at 5/2 and came in at ten to four
I was reading the scenario differently. Not that Michelles client was a gambler but rather they were facilitating gambling. i.e. commision from a slot machine pitch, or routing to a gambling website through your own portal.
Don't know the exact scenario but those were the sort of lines that I was thinking along.
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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.
My client directs potential Betters to the casino's websites, via links he advertises on his websites/apps.
Once that better signs up for an account, all their winnings and losses affect my client.
If on 01.02.14, the net affect of all Better accounts is a winning result, he gets a % of that If on 02.02.14, the net of all Better accounts is a loss result, its a minus %
The days tot up over the month. He is paid for February in mid March. If Feb had a positive commission, he gets paid. If the total for the month is a minus figure, he gets NIL and it carries forward to reduce the next months wins (or the same happens again with losses)
There is little paperwork on this. He has access to an account where he can draw activity reports. On the few that send him a self bill invoice, it just shows the figure payable to him.
If the loss commissions are to be shown as an expense, instead of reduction to sales, that would mean having to invoice each day on its own, either as a sales or purchase invoice. Sounds kinda ridiculous?
I would have thought, that the casinos might know how this should be shown, and their self bill would be set up accordingly.
I dont think any of the other bods, who he knows, who are doing the same thing, split the sales out, they just take the amount payable, as their sales figure. Whether they try to gain an accruals position at their yearend, I dont know... but I would. I have been looking at commissions for March (paid April) so that I can accrue the income.. that's what led me to this question. I cant remember what it is, in my past, that I am thinking of, but there are scenarios where these items aren't a reduction in sales... cant remember what I am thinking of, though! Definitely isnt this exact situation, as this is totally new to me.
-- Edited by FoxAccountancyServices on Friday 23rd of May 2014 10:43:52 PM
Michelle, sounds complicated. I'd be inclined to just take the net commission figure, as that is what is physically received in the business. However, for an indepth breakdown I understand the reasoning behind what you're doing. (I'm a bookkeeper though, not an accountant)
How would it work accounting wise. Would it be a journal from commissions to cost of sales?
Everyone I have spoken to, this end, has said to take the income received as the turnover, and given that the self bill invoices gives one total for "commission earned", I am inclined to say the same. I don't think the casinos will be showing income and cost, in their accounts - they will just show cost? So, by the same token, that would make them wrong - as they would be expecting a sales invoice and a purchase invoice (and I would have thought they would self bill appropriately)? Therefore, I think net commission is acceptable, in this situation. But, I just wanted a few other opinions to support how I felt. I probably should have started a new thread rather then buried it in here, but oh well. AccountingWeb didn't offer one answer to this, funnily enough. I am surprised at that.
A journal could be used to increase the sales and create a cost, yes. Particular attention has to be paid to the VAT though, to ensure that declaration is correct. As this client is on flat rate scheme, and Sage is calculating that, I would have needed to put everything in the long way (sales invoice and purchase invoice) so that Sage could generate the return correctly.
