Director using business bank account as personal.

What to do with a director who uses company bank account as his personal bank account?

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Just taken on a one-man-band client who "for convenience" uses his company bank account to pay for virtually all his business and personal bills. In the books the previous accountants have generally put everything into the directors personal/loan account that they can't otherwise identify as business. I am not entirely happy with this arrangement as it means more work identifying what exactly is personal and what is business and the possibility of erroneously posting a personal expense as a business expenses. I also think that if there was ever an HMRC enquiry they may not look kindly on this although I don't think he is doing anything unlawful. Does anyone have any compelling arguments that I can use to make him change his ways without upsetting him?

Replies (19)

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A Putey FACA
By Arthur Putey
10th Jul 2024 12:26

Happens all the time now especially where they are using fintech banks. As long as the client understands that personal expenses must be cleared by salary or dividend and they are not eating into monies needed for taxes then its quite easy to just stuff them into the DLA. Better then having them use personal funds for business and then throw you a bag of receipts and card slips.

Thanks (4)
By rmillaree
10th Jul 2024 12:29

iots nightmare but ideally you need to try and convince all clients to change their ways - simply advise that theer are risks ref all these expenses being treated as taxable pay or benefits under certain circumstanfces up your fees and or advise that its vital that they know the difference betwen buisness and pleasure and take their obligations seriously.

I f you dont feel comfortable and want to walk away perhaps put that in writing that they have till end of current year to enusre proper ssytem is place so you are satisfied they will not be hit by a picky hmrc inspector just because they can.

" I also think that if there was ever an HMRC enquiry they may not look kindly on this"
yes from memory i think the main danger is if directions loan turns out to be overdrawn there used to be more scope for their to be issues here - thats me working from memory i must admit. the danger with sketchy clients is that even if the loan acocunt shows its in credit woiuld you hapy it remaied so after a full on enquiry

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By Ruddles
10th Jul 2024 12:36

Just follow the previous accountant's practice. If you're 100% certain that a transaction is a business expense, treat it as such. Any doubt whatsoever, treat it as personal. He may then get the message when you tell him that the company is almost certainly paying too much tax.

Alternative is to double your fee to cover the costs of getting the tax bill 'right'.

Clients like that I can comfortably do without.

Thanks (3)
By FactChecker
10th Jul 2024 13:10

Is company VAT registered?

Simply explaining to him your increased costs (due to regularity of having to review and re-allocate transactions) may do the trick.

At worst I once 'cured' someone (well reduced the volume of work for me anyway) by simply getting them to set up a separate personal account with a monthly S/O to put money into it from the business. Still in DLA territory, but with majority of personal transactions now taken out of the picture.

Thanks (5)
By bettybobbymeggie
10th Jul 2024 14:26

I come down hard on clients doing this and they become ex-clients if they disagree. You give them an inch, etc. especially if they are not using bookkeeping software and expect you to sort it out. Business account for business, personal for personal. Simples. You need money from the business then setup a standing order for a lump each month and spend that from your personal account. No excuse not to imho.

Thanks (2)
By Tom+Cross
10th Jul 2024 14:38

Surely, you are effectively charging a larger fee than you would if you didn't have to determine which costs were for business purposes, and which costs were personal.
In addition, it could be safe to assume that the business bank account is open to charges, by the company's bank, whereas it is likely that a personal bank account may not be subject to those charges and could even provide a level of incentive by the bank.
If you ran this by the client, they make look at these aspects differently?
Think of the "cost" of these actions, over say 10 years and then "sell" the concept to the client.

Thanks (1)
By Paul Crowley
10th Jul 2024 17:06

If he has been doing it for years then it will be a pain for both of you.

It may be that the old accountant told him to mend his ways and client decided to move on.

Get him to receive paper statements and write a tidy line through anything that is not an expense or payment for the company.
It it is an expense then write what type by the figure.
These must be done each month, and the statement put on a treasury tag.
Any cash payments? Write it on the statement where there is space.

I choose not to make decisions for my clients. That is their responsibility.

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By adam.arca
11th Jul 2024 09:31

Just put everything which isn’t 100% definitely business to the DL. Give him a copy of that and ask him to identify anything he feels is business with an explanation and supporting paperwork. He’ll soon be the idea that you’re not his nursemaid and not here to wipe his backside.

Or you’ll part ways.

Either way it’s a win really as you definitely don’t want to go down the unpaid bookkeeper route.

Thanks (2)
By Dougscott
11th Jul 2024 10:32

Thanks everyone. I've incorporated some of your thoughts into my latest communication with him. He's a nice bloke but the sort of guy who can't understand why he has to pay any accountancy fees while he earns £3500 a week. He is a bit of a hanyperson and does all his own plumbing and minor building work but he's totally hopeless with figures but just doesn't comprehend it takes time to sort out his hopelessness!

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Replying to Dougscott:
By Ruddles
11th Jul 2024 10:44

Dougscott wrote:
he earns £3500 a week.

That you know about ;¬)

Thanks (2)
Replying to Dougscott:
By adam.arca
11th Jul 2024 12:18

Try breaking it down for him. I like to tell clients like this that “doing the accounts” isn’t a blob but a three stage process:

1. Clerical which is definitely their responsibility: I’m not doing their filing for them and, if something gets misanalysed (usually to private) because I can’t find it, then tough.

3. Accounts which is definitely my responsibility: I’m not going to let anyone else tell me how ready their books are and what I can or can’t do.

2. Bookkeeping is the variable bit in the middle and I’m personally happy to pick up wherever the client chooses to leave off but, the less they’re willing to do, the more it’s going to cost them, obviously, and I will charge extra if they haven’t done what they agreed to do (I don’t actually always do that but clients don’t need to know that :) ).

Thanks (2)
11th Jul 2024 21:47

If the bank account is consistently paying for his items and it is in the company's name and he goes in and out of debit on a DCA your risk on an enquiry that HMRC may say that this is settlement of the employees liability (pecuniary liability) and subject to class 1 NIC primary and secondary along with all the reporting requirements - essentially a salary. Do the sensible thing and tell him to get his own account.

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By Roland195
12th Jul 2024 09:04

Honestly, these days I see it as par for the course for one man band clients. I also agree that as unsatisfactory this is to our sense of propriety, it's preferable to clients who pay for business costs across a range of personal accounts & cards then provide a pile of grubby receipts.

If the client understands that this increases the workload and is more or less happy to pay for this, then it's not a hill I'd choose to die on.

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David Ross
By davidross
12th Jul 2024 09:16

I think you are being a bit 'precious' about this. An absolute pain I agree but not uncommon. I try to frighten the clients into complying by pointing out that HMRC would see their private transactions by default in an investigation, and that I have no wish to pry into their personal affairs

If you are one of the Old Guard who still charges an hourly rate then you have an additional tool, of course. But with software that will quickly find and group transactions, it is not a lot of hours

In my opinion, it is ethical to charge to Directors Loan. I have come across accountants who treat such payments as Benefits in Kind, using this an excuse to create P11ds, then charge for this extra work. One even then charged for the consequent benefit in kind of their fees for filing the personal Tax Return.

Thanks (1)
By WallyGandy
12th Jul 2024 09:44

These situations are very common- if he won't change his ways (and he really should) then £x monthly transfer to private account is a good compromise. Client should not be trusted to distinguish personal or business. Each transaction has to be reviewed with client. The time and aggro? VAT repercussions???
Bettybobbiemeggie has a good idea- but still there will be differences of client opinion. I'd give it one shot to change his ways- if not then walk.
Finally- nobody has mentioned s455 yet. THAT looms large. Seems like too much hassle for me.

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Replying to WallyGandy:
By Roland195
12th Jul 2024 09:53

Surely the S.455 would only be an issue if he withdraws more than if available to be covered by dividends etc so isn't that just as likely to happen with making transfers to his own current account?

If you don't trust the client to distinguish between personal or business, then what are they going to pay for with the business account?

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Replying to Roland195:
By WallyGandy
12th Jul 2024 13:43

Yes- monthly transfers or laborious item by item checking is one matter.
Each, though, could trigger s455. In my experience it's the latter which has caused more adverse Directors Loans as client has no idea just how much in being withdrawn.
I try to get "first year" after incorporation clients to live frugally as possible, take regular monthly withdrawals then if situation OK the ensuing dividend pops the loan into credit.... to enable withdrawal to repay personal credit cards. Never had any problems.... client education!!

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By towat
12th Jul 2024 10:14

Tell the client that you are able to see all of his personal expenditure and that there may be some things he would prefer to keep private, in the past we have seen some ahem, "adult" items going through clients bank accounts.

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By sallyrichardson
12th Jul 2024 11:47

We always point out that if personal items are going through the company bank account and there is an HMRC investigation the HMRC can see all of these transactions, they can ask about the transactions, and it may open the door to allow them to then ask to see personal bank accounts. This usually makes people change their ways.

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