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Advise regarding concierge Business?

Hello all. Just stuck on a tricky situation and donot know how to proceed.

A cleint is looking to set up a concierge service, run via a Ltd.

The company arranges, butlers, housekeepers, buys good for them, food, chauffeur service etc for clients and bills them at the end of the month.

The problem that has arisen is that one of the clients want to prepay £60,000 and then wants them to deduct the invoices from that.

1. Is this allowed? How can this be worked around in the business, if they took this payment?

2 Is there any potential future VAT issues, if you have taken £60k prepayment and approaching the registration Threshold.

3. What would the be the correct way of handling this type of issue.

Thanks in advance for your help.

Manzar

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02nd Apr 2012 17:01

Payment

I assume the customer is not going to pay the £60,000 in actual cash.  If he is then one begins to wonder if the customer is legitimate or if this might be some attempt to launder the cash through your client (for example by cancelling the contract after a short while and demanding a refund of the bulk of the money).

David

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By Hansa
02nd Apr 2012 17:27

Wish I had a client willing to pay me £60k in advance!

I don't think the question made any reference to cash, so my reply assumes the client is either very busy, lives abroad or doesn't want the irritation of monthly bills.  (We often prepay a year at a time to avoid masses of monthly admin - and usually get a discount for so doing).

The actual "deposit" should simply be treated as a pre-payment and, if possible lodged to a a seperate account (specifically designated if the bank allows it). Bills, as they are raised should then be settled from the funds held (actually transferring from the seperate account).

I cannot see how VAT comes into the matter.  Simply, if the Concierge company approches the threshold based on billed items (not deposits), it will need to register.

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By manzar
03rd Apr 2012 09:11

Thanks for the advice. Very

Thanks for the advice. Very helpful. The transfer will be a BACS transfer, so there is a audit trail. Thanks Manzar

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02nd Apr 2012 19:29

VAT time of supply - tax point

I am not a VAT expert.  In some circumstances receipt of payment can create a 'tax point' for VAT purposes in advance of the goods or services being supplied.

Possibly that could trigger a liability to register for VAT sooner than normal.  Whether it does have that effect or not I can't say - but hopefully a VAT expert will come along soon and post the answer!

David

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02nd Apr 2012 20:24

I've never thought of myself as a VAT expert, but ....

the tax point is when you receive the advance payment.

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By Hansa
03rd Apr 2012 01:21

... but IS it an advance payment?

From the situation as described, the funds are by way of a deposit not an advance payment as the contract for services is billed monthly for an unspecified amount and normal trade credit (whether it be 7 days, 31 days or any other period) is extended to such bills.  Assuming the deposit is not contractually linked to the services provided I cannot see how a tax point arises.

By way of illustration, let us say the services for the first three months are 3k, 4k & 3k respectively, deducted from the deposit leaving 50k.  In the circumstances described the client could say "Now I'm back in the UK/now I've got a full time book-keeper etc, I would like to (a) request the balance of my deposit be returned and (b) to commence settlement of bills monthly".  The balance WOULD (or should) be returned thus evidencing the lack of a tax-point.

Deposits are just that, deposits and returnable on demand (unless contractually obligatory) which does not appear to be the case here.  To ensure they are recorded as deposits, I earlier suggested they be kept in a separate account.  In essence this is no different to leaving funds in a solicitor's or accountant's client account when travelling and asking that person to disburse those funds as required to settle bills as and when they fall due - something I've done for clients  several times over the years for all kinds of reasons but mostly convenience.

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03rd Apr 2012 01:53

I disagree

"one of the clients want to prepay £60,000 and then wants them to deduct the invoices from that."

From the above it is clear that it is not a deposit. It is clearly a prepayment. It would be a  deposit if the concierge service retained the £60,000 until a specified event and in the meantime the clients paid invoices as received.

 

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03rd Apr 2012 18:32

Solicitor's client account

A solicitor ordinarily will hold client monies for the purpose of a legal matter upon which he is instructed.  He should not hold client funds which are surplus to those which are expected to be needed to complete the matters in hand.  Surplus funds should be returned to clients promptly.

The Law Society advises solicitors that, "As a solicitor, it is not a proper part of your everyday business or practice to operate a banking facility for third parties, whether or not they are your clients". 

See Rule 14.5 of the Solicitors' Accounts Rules, "You must not provide banking facilities through a client account. Payments into, and transfers or withdrawals from, a client account must be in respect of instructions relating to an underlying transaction (and the funds arising therefrom) or to a service forming part of your normal regulated activities".

One of the reasons for these rules is the risk that a solicitor's client account could be used for money laundering.

Obviously the same risk can arise if an accountant allows his client account to be used as a banking facility.

If a client wishes you to pay his bills with his money while he is away then he should authorise you to be a signatory on a bank account held in HIS name (and not use a bank account in the name of yourself or your firm).  That way his transactions go through a bank account in his name - not one in yours!

David

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03rd Apr 2012 20:03

Not involved

David

The accountant's bank account is not involved in these transactions.

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03rd Apr 2012 20:30

@Peter

Yes I agree the accountant's client bank account was not involved in the OP's question.

I was dealing with a point made by Hansa:

"Deposits are just that, deposits and returnable on demand (unless contractually obligatory) which does not appear to be the case here. To ensure they are recorded as deposits, I earlier suggested they be kept in a separate account. In essence this is no different to leaving funds in a solicitor's or accountant's client account when travelling and asking that person to disburse those funds as required to settle bills as and when they fall due - something I've done for clients several times over the years for all kinds of reasons but mostly convenience."

A solicitor operating as Hansa suggests is at risk of his accountants qualifying their audit report to the Law Society for an apparent breach of the Solicitors' Accounts Rules.

David

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