One of my clients has received a "gift" of £200 from one of her clients, which happened to be in the month of December. I assumed this to be a bonus but when I asked about it I got this reply:
- Regards the £200 paid by ......... in Dec-14, is there a corresponding removal by the bank and transfer to the other account marked as "Gift Aid".
This wasn't a bonus and was accidentally put into the business account by .......... as she did not have access to .............. other account. ............ spoke to the bank manager regards this and it should have been transferred as Gift Aid.
This isn't to be considered as earnings for.......
I am unsure of how to account for this, do I do as they have asked and not put it as earnings and therefore not taxable?
Any help and or advise on this will be greatly received.
Thanks in advance
Corry
-- Edited by Corry on Thursday 8th of October 2015 05:26:06 PM
Client client pays your client £200 in gift aid.... Why?
Can I assume that your client is not a charity.
If paid in error then should it not have been returned to the clients client annulling the transaction?
Why are you at all concerned about whether a clients clients payment should be considered gift aid?
From your perspective your client has received £200 from one of their clients. So, logically the options are :
1) It was a mistake (give it back)
2) It was a loan (Recognise a liability)
3) It was a payment for work done or to be done (Its income)
Not being privy to all of the details I appreciate that I may have missed something but at least my reply should get the ball rolling.
kindest regards,
Shaun.
p.s. remember to file away a copy of that email in your clients permanent file to cover yourself.
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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.
Apologies for the confusion - I think they have miss used and don't really understand the term of "gift aid"...
My client, we'll say Claire, is a self employed in-home care provider. The daughter of one of Claire's old ladies (who had passed away) gave her the "gift" of £200 and paid it into her business bank account (it looks by mistake as from reading the answer above it should have been paid into Claire's personal bank account).
I think this £200 was a bonus (your number 3) and as such should be classed as income and therefore taxable?
But, after asking Claire and using their answer above "claiming it was gift aid" and "This isn't to be considered earnings" - how do I show the money going into and out of the business bank account?
Not really sure how else to explain it!?! Sorry
-- Edited by Corry on Friday 9th of October 2015 11:00:23 AM
No probs, what confused matters were the words Gift aid which would to me imply a gift to a charity. I understand what you mean now.
The situation that you are talking about is a simple gift of money from personal reserves to a freind (people are allowed to give up to £250 per year without IHT implications or tax on the recipient (there are other rules around children, spouses and wedding gifts)).
The scenario is complicated here because the friend works for her on a contract basis so may be deemed to be an avoidance of income tax by paying as a gift rather than a payment.
You need to know whether this is a regular or one off payment.
You also need to look at the work pattern to ensure that there is nothing out of the ordinary such as a dip in charged hours at the same time as the £200 gift.
Assuming that everything is above board then transfer the £200 to the persons personal account and log a note in the books that money was transferred in error. As suggested it would not be income and its brief time in the accounts was a simple mistake.
However...
If HMRC look at it then there is likely to be all manner of grief about it as they will claim that it is disguised income so you need to be in a position to show that it is not (work / income patterns).
As there is breakdown between business and personal in an investigation HMRC would also want to see all of the persons personal bank statements and they would demand explanations of all money going into the account (try to talk the client through that face to face and see how pale your client goes when you mention it! People will often give their guilt or innocence away in their experesssion / reaction).
Assuming that this is a one off then the regulation to wave at HMRC if such occurs is EIM01460.
If this was not a one off occurence then it is likely to be deemed income (plus remember that in agregate the person giving the gift may not exceed £250 in the tax year)... And even as a one off it may still be regardless due to the nature of the service provider relationship that exists.
Your client may inadvertantly have opened a complete can of worms for themself of needing to prove that the sum was not income.
From your perspective you have the letter from them as evidence to cover yourself but for future reference I would also talk to them about the issues around taking gifts from clients (such is of course a completely alien concept for professionals such as ourselves as taking cash or items of value gifts breaks the fundamental principles of our profession... most I would accept is a logo'd pen or diary).
kindest 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.
I have spoken with my client this morning, and yes they confirmed that this was a one off payment as Claire's client sadly passed away. I also explained how it could be interpreted as income but they are adamant that it is not and is not to be accounted for as such, they are also happy to explain it to HMRC if they were to investigate.
I did explain that Gift Aid was a term especially for charities to claim tax relief on donations and this confused matters from an accounting perspective but apparently it was the bank that decided to use those words against the money going back of the business account.
I know that there are special gift rules but I thought that it was just between family member's rather than including friends but thinking about it it does make sense that friends would be included. I guess as you said what complicates the matter is that Claire worked for the mother of the person giving the gift but now no longer does as she passed away the month before.
I have accounted for it as you have said, through the drawings account. I also mentioned to my client that I will be keeping their email on file so as to provide evidence of why I have accounted for the £200 in this way.
Next time I speak with her I will mention the issues surrounding taking gifts from clients!!
Thanks again for your advice on this Shaun, it is always helpful to have someone to bounce these things off
Don't put it to drawings as that would be acknowledging it in the business.
My arguement is to totally annul the transaction as though the money never hit the account as it should never have been there in the first place.
Easiest way is to recognise neither of the bank entries in the books but rather to simply highlight them on the bank statement as an error and a correction.
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.
apparently it was the bank that decided to use those words against the money going back of the business account.
Hello
As an ex corporate banker I would say that the Bank would not suggest the wording for a transfer. If they did it wouldnt be 'gift aid', if it wasnt related to gift aid. Sorry to be the bearer of bad news on this one. Saying that - sounds like you have done all you can in line with what Shaun is suggesting so it will be up to your client to prove that (or otherwise) with HMRC in the event of an inspection.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position