Personal lettings properties on company balance sheet

Personal lettings properties on company balance...

Didn't find your answer?

Hi,

Our firm has just taken on a client, a general builder client who operates through a limited company. I would be grateful if anyone could advise a sensible course of action to take given the following facts:

1. The client owns 4 flats in his own name

2. The flats are let out to private tenants, rental income is banked in the company bank account.

3. The previous Accountants have entered the flats (and corresponding mortgage liabilities) on the company balance sheet.

4. Rental income and expenses have been posted to the company profit and loss account, corporation tax has been paid on the resultant profits for 3 years now.

I have spoken to the partner of my firm and he said to 'take advice', so here I am!

Thanks in advance to anyone who can help

Regards

Replies (7)

Please login or register to join the discussion.

By johngroganjga
25th Jun 2013 15:02

First step I suggest is to ask previous accountants on what basis properties legally owned by the shareholders have been included in the accounts as if beneficially owned by the company.

Thanks (1)
avatar
By Cloudcounter
25th Jun 2013 15:43

We had one of these

I didn't see any point in raising the issue with the previous accountants.  First we established that the properties were still legally owned by the director personally - the fact that the mortgage accounts were in his name was a good clue for starters.

The properties had been transferred into the company balance sheet incorrectly some four years before.  We reversed those transactions, taking the property out at the same value as put in, and transferring the mortgages out at their current (slightly reduced value).

For the accounts that we prepared, we debited mortgage interest to the directors loan, and made an entry for rent payable by the company for exactly that amount.  In the directors tax return, the two netted out.  The company therefore received the rent, subject to its own costs for repairs, agents etc and rent to the director.  With hindsight perhaps we could have treated insurance in the same was as mortgage interest, but it didn't matter overall.

We put a full explanation in the white space on the CT return, covering the point why a few hundred thousand pounds worth of properties produced no gain and no loss, stressing that the company had never been the legal owner, and explaining how we had treated the various payments.

As it happened, we got an enquiry on the company, asking a fair few questions.  We wrote back asking if they had read our explanation on the white space (it was blindingly obvious that they hadn't!) and it was agreed by return

Thanks (1)
Replying to ireallyshouldknowthisbut:
By johngroganjga
25th Jun 2013 15:56

Ask previous accountants first ...

Cloudcounter wrote:

I didn't see any point in raising the issue with the previous accountants. 

The reason why it would be wise to ask the previous accountants first is because there may, for example, be a formal declaration of trust executed under seal that the client has forgotten about but which the former accountants have sitting in their file in case HMRC or anyone else should query the accounting treatment adopted.  In a long career one of the many lessons I have learnt is not to rush to judgement that other professionals are incompetent until I am in possession of all the facts.    

Thanks (2)
avatar
By Cloudcounter
25th Jun 2013 16:03

Without going into detail

it depends who the other accountants are, whether they have "form" for this kind of thing, and whether they reply to letters. 

Thanks (0)
Replying to bernard michael:
By johngroganjga
25th Jun 2013 16:09

I agree that that is one factor to take into account!

I also agree that while a declaration of trust, if one existed or could be entered into, would deal nicely with the inclusion of properties on the balance sheet, I am at a loss to imagine any justification for including personal borrowings.

Thanks (0)
avatar
By WhichTyler
25th Jun 2013 16:15

'I have spoken to the partner of my firm...

I have spoken to the partner of my firm and he said to 'take advice', so here I am!

Is that how you get to be partner these days? Asking junior staff to google it for you?

Whatever options we come up with, remember you have no comeback if it goes wrong. If your partner doesn't feel competent to decide, he might have to think about opening his wallet and paying for some from a suitable professional (and making a note to refresh his CPD at the same time)!

Thanks (2)
avatar
By Archon
26th Jun 2013 22:43

Thanks guys

Thanks (0)