I was hoping someone could help me out with a question. Our company makes a lot of purchases through Quidco (all business related purchases) and the company therefore earns cash back from these purchases.
Currently the compnay directors just keep this cash back i.e. it is paid into their personal account and doesnt go through the books.
So my questions are:
1) What are the issues with them doing things the current way i.e. keeping the cash back for them selves and not declaring it? i.e. deliberately not declaring 'income' on a tax return etc
2) If we were to change things and put all the money through the company i.e. as misc income is this income at 0% vat?
Any suggestions / help would be grately appreciated!!
No time to answer properly at the moment as just on the way out the door but in brief, it's not his money its the companies (seperate legal entity) therefore all of that money should be recorded as received by the business and then taken to the DLA.
I'll leave it to others to answer properly, back later.
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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.
9.1 What is a cash back? The term cash back refers to a payment made by a manufacturer directly, or through a recovery agency, to the customer of a wholesaler or retailer. Manufacturers discount schemes, volume bonuses and other terms may also be used.
Payments to trade customers are often in recognition of the volume of purchases. Payments to the public are normally in respect of individual, product-specific, promotions. Because these payments occur outside the direct supply chain credit notes cannot be used.
Manufacturers providing cash backs are entitled to reduce the VAT accounted for on their sales, provided they charged and accounted for VAT on the original supply.
If you are VAT registered and you receive a cash back, it reduces the taxable value of your purchase and so you must reduce your input tax accordingly. Any cash back payment from manufacturer to customer, that does not affect the wholesaler, does not require the wholesaler to make any VAT adjustment.
This suggests that you need to journal the directors account with the gross cash back, and credit VAT control with 1/6th, and credit the appropriate expense account with the net.
Morning Michelle, I just got back in and started to do a proper reply to this one but you've beaten me to it.
You've answered perfectly so not going to add anything to that but just comment that this scenario seems typical of too many directors who do not see the difference between the companies money and their own.
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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 assuming i can get the payments switched to our company account (rather than the dirs personal accounts) to deal with the cash coming in i would DR the gross to DLA, CR 1/6th to VAT control and CR net to the relevant expense account the cash back was earned on?
Pardon my 'newby ness' but just to confirm doing things as above avoids Corp tax implications too?
To go to the DLA it goes through the company. Even if physically it never touced the company's bank account it is still recorded as though it did and was then transferred.
It is income and it must be taxed.
Any other treatment is money laundering.
__________________
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.
If it helps just mention that the (worst case) punishment for this would be two years in jail, banned from being directors for six years and an unlimited fine.
Might make a bit of tax easier for them to swallow!
all the best,
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.
So assuming i can get the payments switched to our company account (rather than the dirs personal accounts) to deal with the cash coming in i would DR the gross to DLA, CR 1/6th to VAT control and CR net to the relevant expense account the cash back was earned on?
Hi Kim
When the money is posted to the directors bank account, you
DR Gross to DLA
CR VAT
CR Expense account
You could set up a dummy bank account and post bank receipts, so that your VAT correctly picks up on the return. You can then journal one amount to the DLA. I would use a dummy bank account for each director.
If you change over to the business account it will be
Thanks for the info above, I have managed to gets the payments switched over to the company bank account now!
So to get this into the compnay bank account i will:
DR Bank
CR VAT
CR Expense account
I am then a bit stuck on getting this money into the direcotr loan accounts as they are likely to just let this build up rather than take these payments out regularly?
Could you also explain the 1/6th to the VAT account? Apologies for the basic questions!
You will need the directors bank statements, or a list of the receipts they have taken individually, which shows the date paid into their account and the amount.
Once you have that, you do this
DR Gross to DLA
CR VAT
CR Expense account
You could set up a dummy bank account and post bank receipts, so that your VAT correctly picks up on the return. You can then journal one amount to the DLA. I would use a dummy bank account for each director.
1/6th is 20% VAT within a gross figure. If you do what I have said, when you post the bank receipt to the dummy directors account, you can "calc net"
