Thanks ... director says they were doing a lot of business meetings before the incorporation date. Just coveting myself as they like to claim everything!
Just as an addendum to the above remember that whilst pre trading expenditure can go back seven years for VAT purposes that is only 4 years and for VAT on services the restriction is six months.
You still need receipts, not just the directors word for things and from the way that you phrase the above I'm suspecting that some of the expenditure will be going down to non allowable entertaining.
Hope that he kept all of his receipts and appreciates that there may be non allowable expenditure especially around those business meetings (general rule is that anything that wouldn't be claimable post incorporation isn't claimable pre incorporation... Sounds obvious I know but the number of new directors who spent their money before getting a professional on board to tell them whats what is frightening!).
Have a good day,
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.
Thanks Shaun, yes same client. I was aware of the VAT time limits, thank you. This client has made a mess of it all really. Since incorporation they have used the business account as a personal account as in their mind "its their money". So there's a lot of personal expenses paid through the company, a lot of business expenses paid from her own personal bank account, some business expenses clearly show the business name, but other business expenses only state the directors name, which then throws up the question, can I reclaim VAT if not in the business name (HMRC have told me no). Its made even more difficult by the fact the business is run from their home, so same delivery addresses etc.
It a mess and they have a VAT inspection in 3 days, so trying to get to a point to show where her errors have been made!
I'm afraid that I fall on the side of all post incorporation expenses should be in the companies name.
Pre incorporation expenditure was of course from before the company existed so you have the day one introduction scenario, but everything after that should be in the company name.
You know that the inspector will be looking for every little thing like that with a new company as this is the opportunity for them to attempt to put new businesses on the straight and narrow (I prefer to think of it that way rather than them coming along looking for an easy win).
One that they quite often pick up on is whose name the mobile contract is in which does seem a little unfair when at start up many small businesses can only get reasonably priced contracts in their own name rather than their companies (so doing it right is not necessarily in the best financial interests of the company).
All in all it sounds as though this new director needs to have "the talk".
Not sure which is worse, telling your children about the birds and the bee's or telling a new director the facts of running a business.
I've found the best approach to take when trying to explain the fiduciary duty of care is to liken the company to a child with rights of its own and the director has an obligation to care for the child. The child may be his but he does not own it and if they mistreat or misuse it then the child has legally enforcable rights which can see the parent/director fined and/or imprisoned.
For this first inspection I would as much as possible attempt to have everything squeaky clean, so a rejection of most, if not all post incorporation expenditure in the directors rather than the companies name.
Hope that it all works out for the best,
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.
Thank you... yes I'm being quite strict with them... we've already had the talk and she didn't realise that the company was its own legal entity!! She's had personal friends loan her money but put it through the company bank account!
What really annoys me is that they had an accountant help set the company up and apparently give advice!
She (or someone else) has done her first 3 VAT returns incorrectly, so I'm trying to get it so that the inspection can see what's happened. They've claimed vat on all fuel, but as its a personal car, they didn't make any adjustment for private use. I asked whether she had access to historic data to create a business mileage log. Initially she said yes, but now she says she can't. Mileage allowance would have been so much better for her, but now got no option but to claim on the fuel and use fuel scale charge, which I think I am correct in assuming she will incur Benefit In Kind?
Is it possible to change from a fuel scale charge to a mileage allowance from this point onwards?
unfortunately (a) not all accountants & bookkeepers are equal, and (b) how do you know that she actually took the advice as given by the accountant? I for one have had clients who have decided to listen only to the parts of a conversation that they want to hear and for that reason I always send an email after the meeting emphasising the main points that were covered.
With scale charges the rule is that you can only swap between scale charges and mileage on change of vehicle. I always wonder how strictly that is actually applied.
As the client has been doing more than that incorrectly and has not filed accounts or a tax return yet could you not rework everything including backing out the scale charges and recast using mileage allowance? Yes the VAT will be out but my impression is that the VAT is incorrect anyway and this will just make it more so.... Or less so... Or balance it... Whatever it does, it's not right now so fixing it properly before any accounts are filed would to my mind be the best solution.
She says that she doesn't have a mileage log but does she have an appointments diary saying who, and more importantly where, she had meetings / did work?
You could really have done with a lot more than three days between now and the VATman descending on you in order to straighten out the mess (will you be sitting in on that meeting?).
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.
