I have been having a chat with a potential new client and am a little confused with some of the accounts information they have from their current accountant and would appreciate your thoughts as it has been a few years since I have had a partnership client.
Basically it is a Café, the partners are a couple. When they took over the premises one of the partner's mothers gave them a loan for £25k, this was used as part deposit on the premises and the rest was used for renovations and equipment. They have been repaying the loan to the mother at £500 per month from the business account. In the first year accounts the repairs and renewals are shown as expense paid but there is no sign of the loan or the repayments made from the bank. I am not sure if it may have been treated as capital introduced that they cant claim the loan repayments? It is very confusing.
Secondly shouldn't they provide a balance sheet as well as P&L to reflect the assets/depreciation, capital etc? I understand that it is not Ltd but the client is completely baffled and they say they just get ignored or charged for a meeting if they want to discuss anything.
The client says that the accountancy fees on the accounts are about half of what they have been paying but until I can look through the invoices and bank statements I can't do anything about this. My main concern out of all of this is that the partnership has not been claiming the correct amount of overheads/expenses.
Is the net profit split accordingly the figure used for the partners income on their self assessments?
I know I have waffled but needed to get it typed out for my own sake if nothing else
As per usual - clients wander into arrangements with no planning and dont use their Accountants BEFORE the event and then wonder why it all eventually goes bottom end up and why they are in a mess! Usually when they fall out or get divorced or some such and are then completely incapable of making a reasoned decision to save their lives!
No loan agreement = personal loan as it cannot be proved to be a business loan. Unless perhaps the funds went straight in and can be shown to be from one of the parents? Think how can you argue as case with HMRC. But what about the commericality of it - ie what interest rate is being paid (and is interest deducted at source on the payments or is the parent including on their tax return - just pondering out loud!). Of course if it needs to be shown as then injecting capital then the repayments should go to them and they should pay the parent.
What are they saying is the partnership split if they havent got a partnership agreement? If its other than 50/50 - again how can that be proved?
Horse and bolted but they need to get one sorted now.
But then I wouldnt give any advice until you have the clearance and the engagement letter - just do a fact find.
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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
Thank you as always. Will do a list of questions now, unfortunately the ladies father was originally going to be advising as he was an accountant but he passed away suddenly and they panicked I suppose.
Verbally they have said 50/50 but I haven't seen an agreement.
No agreement was drawn up for the loan but it is clearly shown going into her mothers account every month, I don't suppose there is anything that can be done retrospectively.
Also no partnership agreement in place so I will be advising this course of action.
