Redeeming points

lizzy

Please can someone advice if an expense can be put through for a sole trader when they are paying for it using points - like Clubcard or Coop dividend points. I guess not as the original purchase would have most likely been for personal items: what are the rules please.
Thank you

coojee

lizzy wrote: »

Please can someone advice if an expense can be put through for a sole trader when they are paying for it using points - like Clubcard or Coop dividend points. I guess not as the original purchase would have most likely been for personal items: what are the rules please.
Thank you

To answer this, think about the double entry. You'd be debiting expense or asset depending on what was bought but what would your credit entry be? The fact that there is no valid credit entry should give you the answer.

T.C.

I would debit the full amount in expenses and credit drawings for the "payment" of the item.

lizzy

T.C. wrote: »

I would debit the full amount in expenses and credit drawings for the "payment" of the item.

Thank you v much TC - I was thinking the credit would be drawings :001_smile:

lizzy

Hmm but would it not matter that they were "awarded" the points for personal shopping

Janej

Hi Lizzy
I dont think it matters that they paid with points. Think of it this way its still the sole trader using their personal resources (in this case points but it could just as well be cash) to pay for business expenses.
I would personally debit expenses and credit drawings.
Jane

groundy

Not sure on this one but would possibly argue that as no cost has been incurred then no tax relief can be claimed.

LynWest

I agree with Groundy, as there is no cost incurred when obtaining points, they can not be included in the claim against tax.

missmel

There is a cost incurred to obtaining points - its the shopping made over a period of time, which admittedly is probably nothing to do with the business - but then the vouchers used are nothing to do with the business which is why the business should not reap the reward of free assets, hence credit drawings.

In future ask for a receipt showing the items value rather than a payment receipt OR tell the director/sole trader to never spend vouchers on his business again buy stuff at full price and keep vouchers for personal use!

CeeJaySix

Had a similar one at work the other week, our client had bought an asset with loyalty points built up with one of his trade suppliers. Me being a mere trainee thought best to seek advice, manager agreed dr cost of asset (& VAT) (or expense in your scenario) and cr straight to purchases - essentially the points are a discount received, so it reduces cost of purchases, and this 'cash' is then spent on the asset.

In your case the discount received belongs to the owner, so agree would dr expense, cr drawings (or director's current account) - ultimately he's put his personal 'cash' discount into the business to pay an expense.

deanshepherd

^^ Very good explanation.

I was erring on the side of 'no cost, no tax relief' but actually CeeJaySix's point above has swayed me the other way.

Using the voucher against a business purchase and claiming relief is surely the same as paying in cash and netting the voucher against a private purchase that would otherwise have been paid in cash.

The latter may save an argument with HMRC at a later date but I would now willingly take up that argument should it ever arise.

jamesm96

Definitely credit the DLA. What does it matter that the director didn't suffer any cost personally? If he'd been given £100 by a friend as a gift, which he then used to make business purchases, you wouldn't disallow the purchases.

In any event, I'd argue it did cost him personally. He could have used those vouchers to make a personal purchase, but chose to forgo the benefit / value of the vouchers in order to make a business purchases.

jamesm96

jamesm96 wrote: »

Definitely credit the DLA. What does it matter that the director didn't suffer any cost personally? If he'd been given £100 by a friend as a gift, which he then used to make business purchases, you wouldn't disallow the purchases.

In any event, I'd argue it did cost him personally. He could have used those vouchers to make a personal purchase, but chose to forgo the benefit / value of the vouchers in order to make a business purchases.

Sorry... points, not vouchers.

deanshepherd

jamesm96 wrote: »

If he'd been given £100 by a friend as a gift, which he then used to make business purchases, you wouldn't disallow the purchases.

Ah, but what if the friend rather than give him £100 cash gave him £100 worth of stationery to use in his business. Would you put that through as a £100 expense in the accounts?

CeeJaySix

Yes, exactly as if the owner had bought the stationery out of his own pocket and reimbursed himself through DLA. The owner is personally out of pocket to the tune of £100 of stationery which was given to him as a gift.

Unless of course the gift was given specifically to the company, not the owner in a personal capacity, in which case common sense says no expense. But what happens if that gift is a capital expense? eg. the business is gifted a premises from which to trade? That could be brought in at nil and revalued upwards I suppose, but could you do that if, say, they were gifted a machine? Or a gift of material value such as a supply of stock? It has to be recognised as a fixed/current asset or your balance sheet isn't accurate, so the credit has to go somewhere...not sure on that one! But that's not the issue here, as we know the points were a personal asset that were put to use in the business.

CeeJaySix

Continuing on the slight tangent of accounting for assets gifted to the business; a very quick Google didn't turn up much obvious without trawling through HMRC, but according to this link:

http://higheredbcs.wiley.com/legacy/college/kieso/0470587237/ifrs_supp/ch10.pdf

(which isn't British it should be noted) gifts should be treated more or less the same as government grants, with the credit either showing as income on the P&L or as equity (there are arguments for both presented). I suppose that makes sense as ultimately the sole trader swallows all the gains or losses anyway.

Edit: it was bugging me. See here: http://www.hmrc.gov.uk/manuals/camanual/CA23040.htm . Granted that only applies to capital expenditure but by implication I'd say market value to expense/cost and DLA from that.

jamesm96

deanshepherd wrote: »

Ah, but what if the friend rather than give him £100 cash gave him £100 worth of stationery to use in his business. Would you put that through as a £100 expense in the accounts?

Interesting. I think I probably would, but I take your point. I think my argument would be that he could still have used that stationary personally, and that by putting the stationary in to the business he has effectively sacrificed £100 of 'value'.

deanshepherd

And one final 'food for thought' whilst I am in the mood for playing devil's advocate..

If I was booking a business trip and, rather than pay £65 a night at a local hotel, noticed that a friend lived nearby with whom I could stay for those 3 days.

Could I claim a deduction in the accounts for the 'value' he has gifted? and, if so, what value would I use?

jamesm96

deanshepherd wrote: »

And one final 'food for thought' whilst I am in the mood for playing devil's advocate..

If I was booking a business trip and, rather than pay £65 a night at a local hotel, noticed that a friend lived nearby with whom I could stay for those 3 days.

Could I claim a deduction in the accounts for the 'value' he has gifted? and, if so, what value would I use?

No. Assuming you've played Devil's advocate with him as much as in this thread, he'd be unwilling to have you stay.

deanshepherd

jamesm96

deanshepherd wrote: »

And one final 'food for thought' whilst I am in the mood for playing devil's advocate..

If I was booking a business trip and, rather than pay £65 a night at a local hotel, noticed that a friend lived nearby with whom I could stay for those 3 days.

Could I claim a deduction in the accounts for the 'value' he has gifted? and, if so, what value would I use?

It's got to be achievable...

Your friend needs to calculate the cost of the accommodation, by ascertaining a per-square-foot calculation of the costs of purchasing and maintaining the building as a whole, such as the mortgage interest, council tax, utilities and so forth.

He'll then need to use that cost to calculate a proportionate cost of the accommodation provided to you, apportioned both by floor-space (or some other metric for the space provided) and by time.

Your friend (does he have a name? I feel rude calling him 'your friend' all the time, I don't think he'd like it if he read this thread) can then provide you with an invoice equal to the cost of providing the accommodation which you can claim through your business. I'd suggest that the double entry is Dr 'Travelling and Accommodation' and Cr 'Capital Introduced' in the DLA - if the Cr goes to PLCA then the subsequent write-off of the liability will also remove the expense, rendering the whole exercise pointless.

Of course, the friend would need to register his new residential lettings business with HMRC and apply for NI exemption (unless he plans to expand his venture to earn profits over the Self-Employed annual profits limit) but, given that, in its current state, the business' sales will be equal to expenses and there will therefore be no taxable profit, he can probably apply for HMRC to treat it as a hobby trade and avoid the need for Self Assessment each year. In fact, he'll probably get away with not registering at all; HMRC might kick up a fuss but I reckon you'll be able to successfully argue that late notification penalties... etc should be waived as no tax was lost.