Network Marketing (Arbonne) - gifts & samples, entertaining
I have a client who has become an Arbonne consultant. Basically, it is network marketing. The client purchases approximately £5000 of product each year but only sells up to £100 (cost price). The client takes about £500 of product for personal use and loans the rest to prospective/current recruits to try out. Direct sales by my client attract 35% commission and sales made by recruits attact 4% to my client (rising to 8% after the recruits achieve certain sales targets) - meaning sales income/commissions to my client has been at most £2000-£2300 in a year. After their 3rd year of making losses (£15000 in total) I advised my client that I could not foresee this business ever making a profit if they continued without selling the products directly. I was told that "accountants much cleverer" than me had advised them that HMRC are perfectly happy for them to spend 10 years or more making losses (which are offset against employment or other SA income each year). Research informs me that a small minority of 'consultants' ever achieve a big enough team of recruits to achieve the sort of commission income required to turn losses to the kind of profits my client is anticipating. Also, the "much cleverer accountants" advise that meeting with prospective recruits in a cafe and buying them lunch is a marketing expense. None of this advice sits right with me as I was always taught that business must be carried on with a view to making a profit and that entertaining expenses were not allowable for self-employed subcontractors - which these recruits are. Has anyone got experience in this area as I am totally in the dark about network marketing?
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