Hi, I am hoping for some opinions on a tricky issue.
Local Dance school, which my daughter attends, has an annual show which requires costumes for the 250ish participants (circa 1000 costumes). Myself and a number of other parent help sew costumes and source cheap costumes from online. This is done completely on a voluntary basis and there is no payment for services etc. The parents and the children fundraise to raise money for fabric and to buy costumes etc but this fundraising does not cover full costs. The costumes are hired out to the children for the performance (for a small fee) which covers the rest of the costs and the costumes are ultimately owned by the dance school.
The dance school has been told by both its book keeper and accountant that the fundraising money does not belong to the business and therefore should not be paid into the company accounts or logged on the company books, similarly the rental fee is not banked. This is all done as cash transactions seperate from the normal lesson fees.
In order to purchase fabric and costumes cheaply the majority of purchasing is done online and, therefore, requires us to be able to convert the cash either to a bank account, paypal account, prepaid debit card etc but all of these require the cash to be deposited into an account first? The bookkeeper insists that this money should not be deposited to the company accounts because it is not income, and the accountant has advised to use a personal account and cover any online transactions with the cash, but both the owner-partners and any of the parent volunteers are wary of depositing in personal accounts to allow online payments as this could lead to questions of tax avoidance? Does anyone have any experience of this kind of transaction and whether the advice recieved is correct? The dance teacher/ owners are in no way trying to avoid tax but are getting conflicting advice from their advisers, if it should be accounted for as income they are happy to do so.
Thanks in advance for any opinions, I dont want this to seem like a solicitation for free advice, the dance teachers have taken advice from both their book keeper and their accountant, both of whom have stated that they dont think the funds should be deposited to the companies bank account but cant advise/ agree on any way forward. The bookeeper doesn't think the money should be deposited into a personal account but the accountant doesn't foresee any issue. The accountant and bookeeper have both been up front that it is not an area either is familiar with or had to deal with before.
Replies (10)
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You've effectively said that the fundraising income + rental income - cost of fabric - cost of buying costumes = £nil.
You've also said that the costumes ultimately belong to the dance school.
It sounds to me perfectly correct then that the income is declared, the expenses are allowed, and the costumes end up on the balance sheet of the dance school.
Unless you're intending to hold the costumes in a separate entity, the treatment would be the same but they would end up on the balance sheet of that entity instead. Seems like a hassle though.
So, you have an accountant who thinks that Corporation Tax is based on turnover and who is recommending that transactions be artificially omitted from the books in order to keep it below the VAT threshold.
You need another (honest) accountant. Most local dance/drama schools come up against the VAT threshold sooner or later if they are successful. Most deal with it without resorting to bent bookkeeping.
The only thing that will be missed of the VAT Return is the costume hire. I cannot see any other supplies.
The words mountain and molehill spring to mind.
If it's "Local Dance School" money, it goes in the Local Dance School bank account and accounts, whether or not the accountant and/or bookkeeper like it. If it's not, then open a separate bank account for "Friends of Local Dance School", which can be dealt with as a separate entity.