Directors Personal Expenses through bank account

Re:Directors Personal Expenses through bank account

Hi Sue,

Basically what they're doing isn't looked on favourably at all! It is understandable that on incorporation there may be a delay between the actual day of trading/incorporation and the business bank account opening (that's a fact of life) but in reality the most you are looking at is about a two week delay. Banks will not open a business account until the Certificate of Incorporation comes through.

They do need a business bank account! The only thing you can do is try your best to separate the business transactions and post all the rest to drawings/directors loan account - including the bank balance as it is not a company bank account.

Try searching companies house records to see if they are registered at companies house and see what status they are (they do a free company check) on companies house site. This should tell you if they have filed their annual return on time and the date they became incorporated.

The next thing is to try and find out why the Accountants have not advised them to use a business bank account or if they have why they have not opened one. The main problem here is that there is a potential to defraud creditors.

Regards
Steve

Re:Directors Personal Expenses through bank account

Basically what they're doing isn't looked on favourably at all!

Think that is the key point here. Its not to say you can't do it.

As long as there is enough dividends, salaries and reserves to cover the 40k then you are ok to do so.

The directors' account mustn't be overdrawn in an ideal world but if it is it must be repaid with 9 months of going overdrawn and to avoid tax implications mustn't be more than 5k.

Regards

Dean

Re:Directors Personal Expenses through bank account

Hi Sue,

Referring to Dean's interpretation of my original reply. I worded it in such a way because I am not convinced it is WHOLLY illegal UNDER THE CIRCUMSTANCES. I am not at liberty to say what your client's are doing is illegal because I do not know their history nor do I know their circumstances. For example - their Accountants may not have advised them they need a bank account. In which case, there is a case of negligence on the Accountants part. I have come across numerous examples of Accountants (may I hasten to add that I am certainly not one of them!!) who give bad advice to clients - and your scenario is not unique to my experience - hence my post. In terms of law it is only illegal if you knowingly defraud 3rd parties. Your clients may not be aware of the need for a business bank account - this is where your enquiries have to begin.

You need to establish the facts behind your client's actions. Only then are you in a position to decide whether or not to act for them. It would be foolish to refuse to act for them just because there is an element of "professional scepticism" but upon further investigation it transpires that they didn't know the facts.

Have a word with their Accountants, see what they have said, talk to your client and see what advice they have been given. It sounds to me that they may not be totally to blame.

Regards
Steve

Re:Directors Personal Expenses through bank account

I didn't think you were hijacking my reply!

All comments/advice are welcome. I should have been a little more "to the point" in my original reply to Sue. You merely went to expand the points I raised.

Kind regards
Steve

Re:Directors Personal Expenses through bank account

Hi Sue,

Presumably, in line with other professionals you charge by the hour. You could sit them down and explain that the longer it takes you to sort through their receipts and other documentation, the more it will cost them. Explain that they have obligations to you as well as you to them. I tend to say to clients that to help them they need to help you and that will ensure a smooth and stable relationship with the client.

Try to convince them that you are there to assist them and can offer more practical services than sifting through receipts in a carrier bag - at the end of the day if they are serious about their business then they should co-operate. You could also bring them to task about keeping orderly books in case of a tax investigation. I have seen countless numbers of clients who do not keep accurate records receive the Revenues "assessment" of the tax they should pay when the assessment could be substantially higher than what they should have paid had they kept accurate records.

On the other side of the coin, Sue, you aren't there to wipe their nose for them - if they refuse to co-operate with your recommendations or become irate then you need to question whether you can act for them in the long term. Like you said above - you have other clients to service you can't devote all your time to this one.

Kind regards
Steve

Re:Directors Personal Expenses through bank account

This has been a very interesting thread. It sounds to me like the typical small business owner who for some reason or other has been advisd that it is in their best interests to incorporate. The client may have been bamboozled with ideas about what they can or can't claim by way of business expenses or benefits in kind, with such advice being delivered verbally by the accountant who is collecting a fee for arranging the incorporation, and completing future corporation tax calculations.
I would advise such a client in very simple terms that they should now consider themselves an employee/director of their company.Personal expenditure should be funded solely from a salary, (and if they feel confident about their profit margins, a monthly dividend)whilst bearing in mind that they will incur a personal tax bill in addition to any PAYE if they receive devidends, a company car or other BIKs.
Additionally I would ask the accountant to write down what he/she feels can be legitimately claimed by way of BIKs, together with details of any other applcable tax breaks.

Re:Directors Personal Expenses through bank account

Hi

I have now received 3 months Invoices, receipts etc for this client as their vat return is due at the end of this month.

After I had spoken to them and explained they couldn't put their personal receipts through, they have still put all their receipts in envelopes stating they are all business receipts on the front. They are also claiming for meals out, which I had said they couldn't do as they are both Directors, but they have written me a letter saying they have spoken to the Tax Office and have been told they can still claim for meals out. I am also not happy with their other receipts, they are claiming for alcohol, cigaretes, cat food etc and for some shops they have just put the credit card receipt in so I can't see an analysis.

Should I accept the fact that as they have written down that they are business receipts that they are acceptable (obviously I can't claim the VAT on the credit card receipts?

My thoughts are they are trying to get me to fiddle their books, which is something I do not want to be part of. My feelings at the moment are that I should wait for my cheque to clear then resign as bookkeeper.

Has anyone else been in this situation? As I have only recently started up I don't want them to start spreading rumours about me if there is any bad feeling, but I also don't like the way they are treating me.

Sue

Re:Directors Personal Expenses through bank account

I wonder where the line of responsibility is drawn. From your earlier posts, it sounds as if you are completing the bookkeeping then handing over the the accountant for statutory accounts and tax returns. Is this client going to continue there rlationship with the accountant.
Entertainment and subsistence are quite commonly recorded in the books even though the directors cannot claim VAT or show them as an allowable business expense on tax returns.
I would do this:
Where you have receipts that don't show VAT, don't claim input tax.
Record entertainment and subsistence very clearly under separate nominal codes so the accountant can see them easily. This might seem like passing the buck, but in fairness, the directors might want to see how their entertainment expenditure is affecting profit in monthly management reporting.
If the expenditure is clearly personal - eg cat food, post it to the directors current account so it doesn't touch the P&L at all.
If you don't know what they have purchased, tell them you will put the expenditure in the books in the next quarter, when you have sufficient information to record it accurately.
It really sounds like they are trying to pull the wool over your eyes. Be assertive, and let them know that you know what you are talking about.
Good luck

Re:Directors Personal Expenses through bank account

Hi Sheelagh

They have told me they have been in contact with the Inland Revenue and have been told they can claim VAT And Tax on entertainment. I had previously given them the information from the Inland Revenue website, as proof they were unable to claim.

They have also told me they want everything they have given me to be included within their business expenses. They've told me they don't want Management Accounts, all they want to do is get a VAT refund. The last time I saw them they kept asking me how they could get a VAT refund and I told them that in their Industry, Private Investigator's, they were unlikely to get a refund as they would have very little costs, other than labour.

Sue

Re:Directors Personal Expenses through bank account

They are talking rubbish about claiming tax and VAT on entertaining! VAT cannot be claimed on entertaining clients. One of our client's has just had a VAT inspection and this was confirmed by the inspector. What tax can they claim on their entertaining then? Surely entertaining is disallowed for taxation purposes? I think they are trying to pull a fast one here.

You have 2 options here.

1. You can do as they say, perform the bookkeeping and claim the VAT and Tax (as per their instructions) but you must make it absolutely clear that you are acting on THEIR instructions (i.e. get it in writing). You must also send them a letter once you have done the bookkeeping to say that it has been done in accordance with their instructions and bring to their attention the consequences of their actions should a VAT/Tax investigation take place.

2. Discuss the situation with them. Inform them that you are not entirely happy about the situation and them claiming for things which you are aware they can't claim and give them a chance to demonstrate HOW they can justify claiming VAT/Tax relief on such items. If you still feel they are pulling a fast one then send them an interim bill, wait for your funds to clear and then resign.

Who said Accountancy was boring?!

Regards
Steve

Re:Directors Personal Expenses through bank account

Hi Sue,

Nobody deserves to be treated aggressively. Under normal circumstances when we take a decision to resign from a client, we do it more or less there and then (especially if the relationship has broken down). However, in your case, (as an "insurance" backup) I would contact the AAT and ask their advice - they must have come across this before. You may or may not be aware, that it is your client's responsibility (not yours) to ensure their VAT returns are filed on time. The fact that they are always late is their problem and they cannot "pass the buck" so to speak.

Contact the AAT and ask their advice just so you have gone down the right channels.

At the end of the day, Sue, you have other client's to service - you can't devote all your time to them!!

Good luck and kind regards
Steve

Re:Directors Personal Expenses through bank account

If you are concerned enough about reactions to not want to go in to the house, then I would strongly recommend getting a friend (male or female) to drive you and wait in or by the car - visible but not threatening and back up if needed.

Re:Directors Personal Expenses through bank account

Honestly Sue, if you feel like that I really think you should carrier his stuff back to him. Nobody should make you feel threatened, you are well rid of him and I think you've been very professional taking them as far as you have.

Annette

Re:Directors Personal Expenses through bank account

Hi Sue,

The fact that you feel intimidated by this client would be enough to resign even if he is on the fiddle. I hate people like that. We had one client who runs a kitchen store and he tried to be cocky with me (this was a couple of year's ago). When I asked him about various items in the bank (which I knew were private) he ended up gritting his teeth and telling me "not to be so bloody nosey". I got my briefcase and walked out!! When I told the partners at the office we subsequently resigned because I refused (quite categorically) to go back. We didn't prepare his account or his tax return and he owed us money for work we had done in the past. This was then passed on to a legal collections agency and we did recover some (but not all) of the money.

Intimidation, in its own right, is enough to resign and I think you have done the right thing here. You have acted professionally, tried to help the client, advised them of their (wrong) actions and liaised with their Accountant. If he can't help himself then nobody can I'm afraid.

Keep us posted on how you get on - good luck.

Kind regards
Steve

Re:Directors Personal Expenses through bank account

Hi

I have rung my client and told them I was resigning.

I thought it was better than driving to their house and finding they had gone out and I knew if I rang and asked if I could go and see them, he would say they were on their way out. He always does that when I've arranged with his wife to go and see them and she asked me to ring just before I went, then he would say they were going out.

He did say if I wasnt happy with the receipts to just put through those I was happy with, but as we had already been through that twice before and he was still trying it on I decided I had given them enough chances, so I told him I would rather resign as Bookkeeper as I was risking my licence.

He asked where we should go from here, I said either he could collect the books from me or I could take them to him, he didn't even want to discuss it until Monday.

I suspect he may get his wife to ring to see if I will back down, but I think at this stage things have gone too far. I think as Clients they weren't worth the time and hassle.

I have also emailed their Accountant to make him aware of the situation and to tell him exactly what stage I have left the books at.

So now just waiting to hand everything back to them.

Sue