Share this content
0
4
2455

Share premium account that wasn't

A very small (turnover about £30k) OMB Ltd company client that came to me in a bad state of repair (their words not mine) has a share premium account with a balance on it of about £20,000. This was money given to one of the directors by his parents as a "sort of" investment in the company but no paperwork was ever drawn up, no share certificates issued and nothing was ever filed at companies house. Reading between the lines the money was a gift to one of the directors to help them when they started the company and it was treated by the accountant many moons ago as a purchase of shares rather than simply capital injected into the company via the director's loan account. The parents never expected to hold shares and always treated the money as a gift.

The parents died about 6 years ago and nothing ever happened to the "non-existent" shares (the parents are not UK resident or domiciled). So now we have a situation where the Companies House record shows a modest £100 share holding but the filed accounts show (and have done for a number of years) ordinary share capital of £100 and a Share Premium account of £20k.

Help! I am tax qualified rather than ACA/ACCA etc so I am worried about walking into a procedural mine field. My gut feeling is to debit the share premium account and credit the director's loan account. If I do this what happens with last year's comparative figure? Do I need a special note to say what has happened? Some how I think a sentence in the notes to the accounts saying "the directors are well-meaning and lovely people but hopeless when it comes to numbers" probably does not convey the right message. The directors are a husband and wife team so there will be no argument between them and they have one "global" loan account between them.

To add a little bit of spice, the balance sheet that currently shows a small deficit would show a £20k deficit if the share premium account was reallocated. The directors are quite happy to make a going-concern note saying that they do not intend to call in the loan and no-one is intending to invest in the company in the immediate future who would rely on the figures. There is no bank lending.

My question is may I simply transfer the share premium to the loan account and if so do I need to make any special note in the accounts. Any assistance would be greatly appreciated.

Replies

Please login or register to join the discussion.

avatar
By johnt27
16th Mar 2012 12:53

Prior year adjustment

If the situation is that you have a loan classified incorrectly as share premium then given the numbers any adjustment to the accounts would have a material impact.

Therefore, given that this error occurred historically you need to do a prior year adjustment. When you do this you will need to disclose seperately in the accounts why the PYA was done and the effect on the accounts.

No doubt you have considered what the possible tax consequences may be for the owner/deceased parents estate as a PYA is a red flag to HMRC!

Thanks (0)
16th Mar 2012 22:28

Prior year adjustment

Thank you for your response Johnt27. I agree that the adjustment would be a material change, though it would only affect the balance sheet. Is there a format for making prior year adjustments to the balance sheet? I have restated profit and loss accounts in the past but not made balance sheet adjustments. Is the process similar?

As far as the deceased parents' estates is concerned, they are not from the UK, never lived in the UK and their estate was administered long ago in their home country so I think that HMRC would have little to look at here. As to the value of the shares, they are of negligible value.

Thanks again.

Thanks (0)
avatar
By johnt27
17th Mar 2012 09:56

Hi,

The process for doing the pay is the same as that for p&l. So you will need to restate the balance sheet and comparatively to reflect the adjustment required. The comparative numbers will need to show restated above the numbers. You will also need to put some disclosure in the accounts stating why a pay has been done and the effect on the financial statements.

Hope this helps

Thanks (0)
18th Mar 2012 17:29

Thank you.

Hi,

Thanks for the assistance. It was a great help. I will restate as you suggest disclosing what as has been done.

In the end this is not going to affect anyone outside the immediate husband and wife team, but it is always good to get things right at Companies House - just in case someone does decide to look in the future.

Thanks again.

Thanks (0)