Sorry if this is a really stupid question, but if you have a client who is a Ltd company, and just gives you a shoebox of receipts, sales/purchase invoices and bank statements, (as well as theatre tickets, zoo tickets etc!), you look at the bank statement and it has items on there that are just cash withdrawals, but you have no way of knowing if these are drawings or have paid for a business expense in cash, how do you record them? I know to go through the cash receipts and see if the dates/amounts correspond but most of them don't, as she could take £20 out and then a receipt a few days later is say for £14.60.
Before someone suggests going to said client and asking them, they are on benefits and don't want any drawings showing in their accounts. I have already explained to them that it's tough, and if it is drawings/personal expenses then they must be shown as such. I suspect if I go to her and ask her about all of these cash withdrawals she will claim that none are drawings and I know that's not the case.
Its not your issue that they are on benefits. Your job is to use your skills to record the facts, not adapt the facts to suit the clients wishes.
For that sort of client if there are no receipts to cover a drawing then it's a drawing rather than a payment of an expense.
I start off by sorting everything into sequence.
Then match receipts to bank payments.
Then the receipts that I have left must be cash payments from money withdrawn from the bank
Then everything that remains is drawings.
ALSO
Match all invoices to bank deposits
If there are invoices without bank deposits talk to the client about their debtors situation.
If the client states that the amounts remain outstanding then ensure that you record all of the invoices that such relates to and get the client to sign the document.
Where they will not sign off debtors then record them as cash received but not paid into the bank (which will generally end up as drawings).
Is your client on a cash or accruals basis as that will make a difference to how income and expenditure needs to be reported.
hth,
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.
I have assured her that I will be recording everything correctly, regardless of what she tells me, as she pays household bills out of her Ltd company accounts sometimes too, which I have put down to drawings. She didn't like it, but tough.
Fingers crossed everything makes sense in the end. I always liked jigsaw puzzles when I was younger, I guess this is no different.
Thanks Matt, although I am presuming that if it is drawings then I still have to record it as such, and if she goes overdrawn then she just has to deal with it?
Of course, I will explain it is in her best interests to not pay for personal items through her company account, and she should pay them from her personal account.
Would you suggest it would be wise for her to set herself up on payroll instead? She has also been wanting to claim for childcare costs, which I believe she can't do. I am aware she will lose her benefits if she has drawings/wages too, which, as Shamus said, isn't my problem. I just wondered what would be best for my client to do?
the way to clear the ad hoc drawings is to declare a dividend for the amount of the overdrawn DLA at the end of the period.
The company must either be in profit or have sufficient reserves from prior periods profits in order to declare a dividend.
As you identify child care costs are not an allowable expense and if claimed against the company would be a P11d / P11d(b) benefit in kind.
maybe time to put the frighteners on your client and reverse their thinking.
It seems to me that they are looking to claim benefits by avoiding taking money from their business.
They are on benefits to compensate for lack of income. To claim benefits whilst able to receive income (but choosing not to) is fraud which actually comes under money laundering legislation so you have a duty to report.
If the taxpayer is on low income then they are entitled to tax credits, however your client will need to ensure that they have a sound contract of employment with the company in order to claim tax credits and be aware that tax credits are now being retrieved by a third party company (Concentrix) paid only by results.
When Concentrix investigates a director there is a lot of additional documentation / evidence to put together and your client will need to be aware that such goes into all of their finances not just their business so to help them sort out the investigation pack will cost more money and would not be included in the work that you are already doing for the client.
The evidence pack will also include needing to supply the contract of employment and evidence of the number of hours that one is working in the business (that is to combat people setting up companies with no income to be employee's so that they can claim tax credits).
If found to be guilty of not paying themselves sufficient income where the company has the money and they control the company then they will be faced with repaying all of the benefits plus fines.
As I say, the American company doing the hunting is not HMRC and are paid only by results.
Your client may suddenly have a change of heart over their financial arrangements after such revelation.
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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.
you're right, like many here I use the term interchangably for the self employed and PSC's. The reality is of course that it's a loan which of course the tax payer could repay before the period end.
But, taking it that they've taken (drawn) the money by way of a loan with no intention or indeed means of repaying then it's either dividend, annuallised salary or personally born expenses (or combination thereof) to balance it against.
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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.
Shamus, what a great and informative reply. I will certainly look into what you've said, and put the frighteners on her as you put it. That should do the trick. She's already made what I'm going to call a misinformed error, and is quite panicky already. The key is to get her to listen to me or at least take responsibility for it.
And Matt, thanks for the clarification regarding drawings, I too use the term loosely as in any personal money coming from the business, which of course is incorrect and could be confusing to clients.
Thanks both of you for your help.
Carol
