Hi All,
I am hoping for a bit of guidance as I have just been approached by a client who has registered a Limited company with the following business activities:
Primary - Other letting & operating of own or lease real estate
Other - Accounting/audit services
The client bought a property in 2015 and has been renovating it, ready to be let out. At the same time the only director has been working through a recruitment company on a short contract doing accountancy work. The fees for the accountancy work has been paid gross into the clients business account and they have been using this revenue to pay for the refurb of the property.
My question are:
1.Can the expenses of the property refurb be offset against the income received from the short accountancy contract? Or, should the income, despite being paid into the business account, actually be classed as employment income and therefore be reported on the directors personal tax return?
2. The company year end is 30th June 2016. So far no rental income has been received only expenses. If the income from the short contract can't be used to offset these, the losses generated will carry forward to next years profits, is that right?
3. If the client changed their year end to 31st March 2017 and produced a long set of accounts, what factors would need to be considered? What would be the pros and cons of doing this?
Thank you in advance for your help.
Replies (14)
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The company is the legal owner of the property but the Director paid for it. The Director has set the company up with 1 ordinary share being equal to the purchase price of the property...
Why would they do that (create massive share premium account)? Why not create director's loan to enable Director to withdraw funds if needed?
You need to consider first if the property refurb by the company is capital or revenue expenditure and treat accordingly.
You next need to consider how the company can offset rental losses (if there are rental losses) against trading profits? It usually cannot do this. However Non Trade Loan Relationship Debits may be useful, if there are any. Did company acquire property with any borrowing?
If director taking funds from company what are these, salary/dividends?
If refurbishment of property is revenue would company still have enough reserves to pay dividends?
Is this a PSC?
If client has structured as you suggest you really have to ask him why? Did he seek advice?
My limited understanding on this is that the differing traders should effectively be ring fenced and while forming part of the same accounts dealt with separately.
Not something I have a lot of experience with so get a second opinion on that.
You will also need to establish if the property renovations are capital or revenue before considering the overall position for rental income etc.
At the same time the only director has been working through a recruitment company on a short contract doing accountancy work. The fees for the accountancy work has been paid gross ...
Is it the director who has the contract for the accountancy work or the company? If it is the director and he has been paid "gross", it looks like a self-employment to be reported on his personal tax return and nothing to do with the company other than if he has paid the money into the company bank account, his loan to the company will have increased. I don't understand why you think it might be employment income paid under PAYE.
On the other hand, if it is the company which has contracted for the accountancy work, you need to consider if the director has been providing personal services to the end-client and hence, if IR35 applies.
Well, you seem to now be presenting completely different facts to those initially outlined, in which you stated that you had a company with multiple business activities, and now you are stating you have a director of a property investment company who is also self-employed.
Frankly, it sounds like you are just thrashing around in the dark hoping not to bump against the furniture.
The problem is that you keep presenting slightly different scenarios. It's impossible to give guidance on an ever-changing scenario.That is why I am here, seeking guidance and advice in a scenario I don't have any experience in just yet!
So, if you really want to go ahead working with this person, pin down the full facts and come back if you are still unclear. Alternatively, as already suggested, just accept that this is beyond your abilities (there is no shame in that. We can't all be experts in everything) and turn the work down.
As you have "just been approached" by this person it seems that they may not yet be a client.
I suggest that they would be best advised to go and find an accountant who can help them out of the huge mess that they seem to be in.
I would suggest a different route. We know nothing of your capabilities and other posters have been hard on you. The advice to find an accountant will or could mean that you loose business. I suggest you find an accountant with whom you can work and take the problem to him and in return you ask him to give the poortion of the work you feel happy with.
If you were near me I would offer this joint arrangement.