Double entry for non-cash shares

Double entry for non-cash shares

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Hi,

I have a client who has issued some shares for non-cash consideration as they are in lieu for work - what book keeping entries do I need?

Are there any tax considerations that I need to be aware of?

Any comments appreciated as I haven't touched on this area before.

Many thanks

Louise

 

Replies (10)

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By johngroganjga
20th Apr 2015 10:44

Is the supplier's invoice for the work already sitting in creditors in the client's books?

If so that's where the debit for the share issue goes.

If not, get the client to obtain the invoice and then proceed as above.

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By LTPBC
20th Apr 2015 12:24

The work isn't from a standard supplier as such.

The client is a set up company and there are 2 people which have put unpaid work into the initial set up phase.

1) The key Director who has put in the original cash and has shares, but has now put in additional work and wants more shares in lieu of payment.

2) A Key player who has been rewarded shares in lieu of payment.

Should invoices still be raised?

Thanks

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By johngroganjga
20th Apr 2015 12:37

So there are two individuals each is receiving a different number of shares?

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RLI
By lionofludesch
20th Apr 2015 12:48

Employment status

Once again, we have a querist who expects an answer yet is economical with the information.

Is this an employment or  self employment ?

Is there any VAT ?  Or PAYE/NI ?

What's the price of the shares ?

Is the difference to be made up in cash or through DLA ?

 

 

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By LTPBC
20th Apr 2015 13:42

Hi

Yes, there are 2 individuals each receiving a different number of shares and not paying cash for them.

Apologies if I have been economical with the information, I will try and add some more detail below.

Background:

The client is a start up limited company with one Director.

It has just become VAT registered and it is not an employer.

Individual 1 - The Director

He initially invested cash into the company through the DLA. He then bought shares using the monies in his DLA.

However, the company has now issued shares to him worth £25,000 for non-cash consideration to reflect the work establishing and running the company so far.

 

Individual 2 - Key player

This person has not invested any money into the company only his time.

The company has now issued shares to him worth £2,500 for non-cash consideration in recognition of work in the early stages of the company.

I am unsure as to how I should treat these 2 share allotments and whether they are indeed correct?

Share price is £500

Thanks

Louise

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By johngroganjga
20th Apr 2015 13:50

You need to work out the tax status of the individuals viz a viz the company, and whether, and if so how, they are taxable on the income that they receive in the form of additional shares.

Think of it in terms of what the position would be if the company paid them for their services in cash.

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RLI
By lionofludesch
20th Apr 2015 13:58

Agree with John

Just because the company is not yet an employer doesn't mean that it won't need to deduct tax and NI from the payments for the shareholders' work.

I was actually asking whether the shareholders were VAT registered, rather than the company. Supplying self employed services to a company is problematical but you have a better chance if the workers were already in business, providing the services that they provided to the company.  Setting up a business specifically to provide services to the company - and supplying no other customer - looks contrived.

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By LTPBC
20th Apr 2015 14:07

Thanks for confirming this John.

I will look into the impact on their personal tax and treat these non-cash shares as management services in the company's books.

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By LTPBC
20th Apr 2015 14:10


Thanks for your comments as well lionofludesch.

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By johngroganjga
20th Apr 2015 14:10

And when that side of things has been thought through and sorted out, and the unpaid considerations for the shareholders services are sitting as credit balances in the company's books, where to put the debit for the share issues will then become obvious. The only difficulty here is that you seem to be trying to account for the transactions in reverse chronological order.

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