A prospective client has forwarded me last year's accounts for her consultancy business which is run from her own home with a modest turnover of around £60K. It all looked pretty routine until I saw the fixed asset note which has £31K of "Paintings" (and £2K of plant/equipment).
The Paintings haven't been depreciated but I'm struggling with the logic behind this treatment. I'm due to meet the client next week but was just wondering if I'm missing something very obvious (or very obscure)?
Any ideas anyone?
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Location?
Where are the paintings? In a separate home office? What sort of consultancy do they do? What sort of paintings, are they relevant to their work? Do clients visit?
paintings..assume the worst
The paintings may be hung in the home office..
Or in the home it -self.
Or may not even be on view.Could this avoid a BIK. Treat as an investment.not plant
Or may no longer exist..sold or gifted or destroyed
So are they plant and equipment..?..there are tax cases on this.
But they may in reality be personal purchases not put through the DCA.
They could be considered as INVESTMENT assets., perhaps
or Trading stock intended for sale
BUT now for the sting...
it could well be a benefit in kind
with tax and NIC implications
when you have done your fact- find and know your client checks
you may be the messenger of bad tidings...tax wise
what happens if prevuiosly unreported BIK arises.. client may be reluctant to self- report.
is a money laundering issue about to arise
Are the paintings insured ?
in company name ?
what is market value? loss /gain
tax implications on sale?
where is the original sales invoice -in whose name
do you have a fee protection policy....to offer client
Full research is required
was client ill advised .Was client aware of ramifications--
ask former accountant for clarification
Ensure that you are not put in a risk on tax advice- provided now and in the future.
Lets hear the out come of your meeting, please
so what?
You all sound like tax inspectors!! Pictures on a balance sheet!!! (actually a jpeg of them on the BS might be nice)
At the end of the day the business has purchased an asset and it/they are too big to treat as expenses so they are on the balance sheet. They are obviously of sufficient merit that they will not reduce in value so no dep. As long as they are not hung in a totally non business area then there is no issue surely. Wholly and exclusively and all that
I had an investigation in a hairdressers once where the client had bought pictures (not high value) but it didn't stop the inspector asking why he couldn't see them on the wall in the salon.
As with everything we ask the questions and form our opinions but we must make sure we don't go overboard or over react or we will spook the client
All very well frankfx ...
... but you need an answer to my query - if not a company then no BIK!
The logic behind including paintings within fixed assets is, with respect, obvious because that is what they are. Where else would you put them?
As others have said, if the paintings are owned by a company there are likely to be tax implications.
First question for client is where are the paintings and how, if at all, are they used in the business.
Two possible reasons
FIRST REASON
If a Ltd Co then works of art may have been sold by the director to company to put right an overdrawn Directors Loan Account.
(in the 1970's the first I did an "audit" on a particular small company I asked where were the dividends from the "Quoted investments" on the company's Balance Sheet - answer there were none, the "quoted investments" were the directors postage stamp collection! Had been introduced to Co Balance Sheet to pay off an overdrawn DLA and misrepresented as "quoted investments" - quite amateurish)
SECOND REASON
To help the business obtain finance by showing assets, a sole trader in particular might show personal possessions of value on his/her Balance Sheet.
Have you seen the purchase invoices to verify that she actually did buy paintings and isn't trying an accountancy scam?
Lets be suspicious here...
In terms of treating them as fixed assets, I'm still struggling to see how £31K worth of paintings would be of benefit in generating business turnover. The consultancy services are provided mainly to public sector bodies and I doubt there's much client traffic at the home-office.
I might be being overly suspicious, but paintings are hard to value at the best of times, but this could be a scam.
Is £31K the actual price paid for the pictures or have they been transferred into the company and the valuation assessed as £31K? If so, by whom?
Valuation is highly relevant
In terms of treating them as fixed assets, I'm still struggling to see how £31K worth of paintings would be of benefit in generating business turnover. The consultancy services are provided mainly to public sector bodies and I doubt there's much client traffic at the home-office.I might be being overly suspicious, but paintings are hard to value at the best of times, but this could be a scam.
Is £31K the actual price paid for the pictures or have they been transferred into the company and the valuation assessed as £31K? If so, by whom?
Very good question, it reminds me of the intriguing Rubies case in the Midlands...
construction company fraud rubies
Why are you struggling?
Why are you struggling? Where do you think the previous accountants should have put them? - cash? debtors?
The Old Story
I bet the answer is straightforward.
Client wants paintings.
Spare money in company.
Company buys paintings.
.
@vaughan Blake1, quickly followed by "accountant tries to write them back via the DL account, client refuses. Accountant makes client sign big fat disclaimer, finishes accounts to get paid, removes their name from all the reports and resigns PDQ"
Have you spoken to the old accountant? And I don't mean a dry prof clearance letter, I mean on the phone 'off the record old boy' type of thing.
Maybe the client has an office of a decent enough size that a few pictures on the wall would look good. Client has good (or poor, depending on the pictures) taste. Client's business has surplus funds. Client has expensive tastes and doesn't fancy saving money. Client sees nice yet expensive (to us) pictures and thinks 'aha, they'd look jolly spiffy on my office walls and I'd feel good, and therefore productive, every time I looked up from my desk and saw them'. Seller thinks 'aha, mug, kerching'. Sale made. Accountant rolls eyes and capitalises. New accountant queries.
I have pictures on my office walls that my company has paid for. Sadly they're not worth anywhere near that much but they're better than blank walls or sticking a couple of poxy certificates on the wall. I'm not sure why they would need to be generating business turnover - the clock on my wall doesn't, nor does the bookcase, or the rug on the floor (though the dog likes to roll on it and it doesn't show the hair).....
You're a suspicious cynical lot :)
Suspicious, but not paranoid...
You're a suspicious cynical lot :)
A business with a 60k turnover has 31k of bling on the walls and you expect me to simply sign that off as perfectly normal business practice?
If we were talking about a barristers chambers then perhaps...
I wasn't born yesterday you know.
" Miscellaneous current assets "
I've just checked the accounts of Wrekin Construction Company Ltd - not a shining example to follow? - their 2007 accounts appears to have had a legendary gem allegedly worth £ 11,000,000 included in current assets.
For more see...
http://news.bbc.co.uk/1/hi/england/shropshire/8518242.stm
A very entertaining report (unless you're a creditor of WCC Ltd).
Ah but
Modest £60k turnover but how much was profit and is this every year for many years? My point being that if she has say profit after tax of £45k for a good few years then there may well be plenty of dosh available to splash out??
And while I wouldn't personally that doesn't mean that some folk wouldn't see it as perfectly reasonable. Everyone is different and I just think we're sometimes too focussed on the negative possibilities and forget that some will want to enjoy every penny of what they make. (Often before paying the taxman!)
other possibilty
House Painting as opposed to art work.
Client happy that her expenditure appears in the accounts. Accountant happy no capital allowances or expenses claimed.
Then the jolly client decides to change accountant.
This is one query that we are waiting with baited breath to find out is it a Lowry or Joe Bloggs.
Do tell.
Maybe it's a wasting asset...?
http://pdtaxconsultants.wordpress.com/2013/07/01/castle-howard-tax-advic...
This case centres around whether a painting, which hung in Castle Howard, was plant and thus deemed to be a ”wasting asset” for capital gains tax purposes.