Other Creditors - Balancing figure???

If your client has a computerized system it may be worth having a look at the previous years TB and comparing it to your current years.

This may highlight your £20k movement without going back to the previous accountant.

If not I would tell your client you have an issue with this amount, he may be able to shed some light on it or may have more luck contacting the previous accountant.

Laura8192 wrote: »

I have been told by my clients past accountants that the other creditors figure of over £20k in the TB is a "Balancing Figure"

If I have to reverse this in this years accounts, it will increase his profit by £20k and his tax bill by over £4k, he is not going to want to hear that!

I fear that they have "invented" £20k of expenses and posted the double entry to Other Creditors.

Does anyone have any advise for me please? What would you do in my situation? Thank you

If the previous accountant has told you that it is a balancing figure by e-mail I would keep a copy of this e-mail with the signed accounts just in case there is a HMRC inspection.

The £20k creditor could be anything, e.g. un-reconciled personal credit card, trade creditors paid personally, suspense balance, under declaration of vat, deferred tax movement, etc. So if you write it off to the p&l you'll just be making things even worse.

I'd just tell your client that you'll have to leave it on the balance sheet until you establish what it is or if the client is desperate to get rid of it then make an account in the p&l called "creditor write off" and write it off through that account (and adjust for this on the tax comp so the client doesn't pay any extra tax).

If this is a former client of Christopher Lunn and Co. then those accounts will have more holes than a horse-traders mule (don't ask!).

Assuming the voluntary disclosure process has been completed for that client and signed off by HMRC then I would go down the prior period adjustment route and restate the correct balances, posting the difference straight to reserves.

It is unusual to have a large credit balancing figure, most of the accounts I have seen have a large debit balancing figure simply recorded as 'bank' with no reference to the actual bank balances, which are usually negligible.

Providing the voluntary disclosure process is complete, and any underpaid tax to date sorted, then HMRC will not be too concerned with the mess of a balance sheet that is left.

If it was a debit balance then there would likely be an overdrawn DLA problem to contend with for both S.455 tax and beneficial loan interest. Yours is probably the easier scenario to deal with.

If you are just doing the accounts then it is only the comparatives you may need to restate (e.g. opening balances).

For the disclosure your client will need to go back anywhere up to 20 years depending on how long Lunn has been acting for them.

If you are going to be handling the disclosure then you need to brace yourself. I have typically charged between £2,000 and £3,000 for handling a disclosure and even then it wasn't worth it for the aggravation.

If you want to do it 'for fun' then read every thread in this forum. You will get the full background and an agreed process for presenting the disclosure.

Personally, after about a dozen of them, I will be glad not to see another!

Each case is slightly different but here are some things that probably apply:

- Accountancy fees are likely to be significantly overstated in both the sole-trader and limited company accounts.

- Your client is very likely to have been invoicing only as a company (or only as an individual) making the other entity a sham.

- There was probably no PAYE scheme operated for the directors salary.

- The company was probably formed (off-the-shelf) a year before your client really incorporated and a years worth of sole-trader income may have been 'allocated' to the company retrospectively.

- Use of home as office will have flitted between £10 per week and £20 per week with no reference to actual costs.

- The bank accounts will not have been reconciled and are probably balancing figures.

- An overdrawn DLA was probably ignored or called something else on the balance sheet.

- A number of personal expenses were probably claimed (evenings out, clothing, personal grooming).

The forum has a full list of 'areas of concern' in a word document sent out by HMRC.