I'm doing the accounts for a small business that gets all of its income in cash. In order to avoid bank charges the owner had been paying cash into his personal account before transferring the money directly into his business account. I am confident that the only reason he was doing this as the bank charges for paying into his business account was expensive for such a low profit business. However, I am wondering whether I should suggest that he stops doing this as HMRC may consider this to be a company loan.
Any advice on this would be greatly appreciated.
Many thanks
David
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Replies (5)
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Like he said
If it's LTD- STOP NOW.
Otherwise, no probs, but a word to the wise would be useful.
Not recommended
Assuming that it is a limited company, paying company income into a personal bank account is not recommended. Yes - it constitutes a loan to the owner/shareholder which is potentially subject to s.455 tax, but if he transfers the money immediately into the company bank account, he has repaid the loan and there would be nothing outstanding at the year-end, so no s.455 tax would actually be payable.
There will be accounting and possibly tax problems if he retains some of the cash in his personal account either to pay for company expenditure or by way of his own salary or dividends.
Dear all,
Many thanks for taking the time to reply, it is very much appreciated.
Yes I confirm that it is a limited company
Kind regards
David
Whilst Euan has covered the s455 aspect there is also a P11d iss ue.
If he holds more than £5,000 of company money at any time, even for 1 day, there is a P11d reporting requirement and a benefit in kind with implications for income tax and Class 1A NICs.