Capital Intro by Investors?

Vonni Registered Posts: 63 Regular contributor ⭐
I wonder if someone can help.

I have a UK limited company whose principal activity is consultancy. The one director lives in the UK and visits Kuwait & Dubai regularly to provide consultancy services to oil companies.

Last financial year the business invoiced both UK and overseas suppliers and incurred costs and everything was straightforward.

This financial year the business ceased invoicing in the last 4 months but still continued to incur costs; the business therefore made a considerable loss (£77K!). However, these costs have been covered by the Director pursuading various businesses and individuals to invest in the business. Funds have been received totalling approximately £70k and these have been paid in to the business bank account.

After speaking to the client he assures me that the investment money is not to be repaid but 'if' the 'seed money' as he calls it grows then the investors will get an interest in an offshore company (which has been set up by another accountant?!?)

In my mind alarm bells are ringing - I have correspondence from a solicitor which has set out the individuals and companies that have provided the investment but there is nothing to say that this is non repayable.

It's a substantial sum of money from several sources but how do I include it in the accounts?

Should it be treated as income or should I put it on the balance sheet - the client tells me that the offshore company will hopefully at some point take on major contracts that will feed money in to the UK business - presumably as management fees in future financial years.

Technically in my mind the UK business is no longer a going concern? It has only been able to meet the day to day running costs by using these non repayable funds!

On the plus side the business has no debts their PAYE, VAT, suppliers are all paid and the only thing that is outstanding is the CT from last year which they haven't paid - but assuming the loss they expect to be able to carry back losses this year and that is why they haven't paid it.

Any helpful comments or advice from members would be appreciated.



  • anniem
    anniem Registered Posts: 1,326 Beyond epic contributor 🧙‍♂️
    Vonni wrote: »
    In my mind alarm bells are ringing

    These 7 word about summarise my thoughts too; and instinct shouldn't be ignored as all too often initial reaction isn't wrong!

    If you're covered by AAT MIP then definately get some advice before you sign anything off, although peeps on here are reliably brilliant too!
    FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire
  • burg
    burg Registered, Moderator Posts: 1,441 mod
    To me things seem a little dodgy and if I'm understanding correctly possible money laundering. (The money may be moved to another offshore company through this company?)

    Although the company is not generating income if the directors and investors are to keep putting funds in then I don't see why it isn't a going concern if the funds are still going to be made available.

    You'll know the client better than most and if things sound dodgy to you then they may well be.

    I would point out to the client that the agreements don't state the funds are not re-payable and that if he believes otherwise can he provide some written evidence to support the accounts.

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