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Director using company for personal expenditure

Help me get the message across please!!

 I have a client who I took on about a year ago. This client uses the company bank account to pay for, it seems, most of their personal expenditure, we are talking c£3k - £4k per month for food shopping, clothes shopping, meals out (which they openly state are NOT for business -  I don't think they are trying to hide anything) holidays, car repairs, all personal fuel  for both her and her husband (no mileage logs kept) the list goes on. Accounting/tax treatment wise I believe the only real solution is to post it all to the DLA and clear via a dividend. At the end of last year however there were not enough reserves for a large enough dividend and so a significant amount of tax was paid under s455. I am hoping that the reserves will be sufficient to support a larger dividned at the end of next year to clear some of the balance down. I came to the client after the last year end, no previous bookkeeping work done, and had a job to pull together the accounts from the limited records available. The client also seems to be incapbale of keeping receipts despite me explaining the need for this (not that its not obvious!) many many times. To be honest it's likely that some of the expenditure taken to the DLA may well be for business but in the absense of any receipt or definite answer I see there is little choice but to treat expenditure as personal. The company is small, but not tiny (turnover in the £100k's per year).

My question is not really surrounding the accounting treatment as I am comfortable that this is the correct course of action. My frustration lies is that I have told the client so many times that this is not appropriate, but the advice seems to fall on deaf ears.    Does anyone have any advice? A way of explaining the situation which might lead to a behavioural change? Any sucess stories? Or should I 'break up' with the client and move on? Or am I overthinking things?? Any sucess stories or words of wisdom would be gratefully received as I am nearing the end of my tether!! 

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10th Dec 2018 11:35

I can totally understand your frustration, there's really just two ways to present this to the director.

Either the company can afford to support them, in which case dividends to cover the spending have to be declared and the director has to realise they're increasing their personal tax bill each and every time they take money from the company, or it can't, in which case the ultimate conclusion to their spending is that the company will go bust and any debts it owes when it does so will be the personal responsibility of the director to meet, since they owe the company.

It's up to you how you dress this up to explain it but try to avoid pulling any punches, if the company can't afford to bankroll the director, something has to give sooner or later and the legal separation of company and owner doesn't extend to situations where the owner owes cash to the company, the debts are their own debts, whether by an overdrawn loan account or illegal dividends.

Another tack I take with clients is to point out they're paying me to go through the bank statements and my time isn't cheap, it'll go better for them if they have one payment to a personal account per month and the rest of the transactions strictly business, there's no benefit in me analysing personal expenditure.

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10th Dec 2018 11:36

Why break up? Just keep your life simple and book everything without a receipt to the DLA (even if it's possible it might have been allowable if there had been a receipt). Keep a note of all the expenditure that you think may have been allowable had a receipt been kept. At the end of the year, show the client a breakdown of the costs that he has incurred unnecessarily. If he doesn't change his ways then it's no skin off your nose.

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to Tim Vane
10th Dec 2018 12:58

Agreed.

Stupid people who don't take advice generally pay higher fees. That is the just reward for putting up with them.

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10th Dec 2018 11:56

Don't worry. We've all got clients that don't take advice. The main thing is to make sure that you get paid - if necessary get as much upfront as possible because as sure as eggs is eggs they'll walk away from their responsibilities and debts when it suits them.

In the meantime the Section 455 paid is a great incentive for the client to change their attitude.

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10th Dec 2018 11:59

Advice?
yes - get rid of this idiot.
Or double your fees until he either gets the message or goes somewhere else.

You can take a horse to water......

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By DJKL
10th Dec 2018 12:47

You can try selling that every transaction in the company books has a cost re processing, so replacing them all with an X per month salary/dividend. would help reduce the book keeping costs.

Doubt it will work, I once had a farming client whose bank consisted of about 5-10 business payments a month and about 20-30 non business, I tried to point out she was paying me to write up transactions that ought not to be there (back in the days of manual cashbooks); she did not take a blind bit of notice (but at least paid our fees without arguing).

I doubt it will work with your client.

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10th Dec 2018 12:58

In many ways, these nice but dim clients are the most frustrating to deal with.

You can talk to them until you're blue in the face and they'll listen politely and give every semblance of taking it all on board; but nothing will change and you can have exactly the same conversation next year.

Bottom line, it's not worth worrying about too much. Do the best you can with what you get, and occasionally point out the error of their ways to them just so that they can't ever say they weren't told.

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to adam.arca
10th Dec 2018 13:09

The safety valve in this is not to try too hard to get them to change. If I had a £ for every late client who has said, 'I promise to get it all to you early next year' . . . They seldom do.

My advice to the OP is to take the emotion out of it that gets expended in 'persuading', but instead concentrate on the outcomes of their poor decisions.

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10th Dec 2018 14:02

Who prepares the VAT returns and do they include the personal expenditure as company costs?

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to bernard michael
11th Dec 2018 09:19

They make fully exempt supplies so VAT not an issue thankfully.

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By frankfx
10th Dec 2018 15:52

Is the DLA debt recoverable? going concern

if you are covering yourself , ensure that question is raised , and suitably answered.

all company accounts accounts are drawn on basis of being a going concern………… 12 month review from SIGNING off date.

An invoice for that service may help your own bank account.

As others have said, invoice a fee that you are happy with.
Get paid ……………. and let the client continue his behaviour , you will not alter that ( Donald trump comes to mind ).

A schools minister / quango head recently said it was not the role of schools and teachers to potty train pupils.

In our sector we just get on with the mess...…..and paid to do so.
Is a nosegay, tussie-mussie, , tax deductible ?

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11th Dec 2018 09:20

Thank you very much for the advice!!!

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11th Dec 2018 11:49

I've sued many directors for DLAs and/or illegal dividends once their companies have entered Liquidation.

Many of the insolvencies I have dealt with have come about due to the Directors bleeding the Company dry.

Ultimately unless the Director listens to your advice it could all end in tears. If a Liquidator pursues them personally for DLA/illegal dividends then they are at risk of personal insolvency (Bankruptcy etc) and losing their assets and income.

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to Insolvency Practitioner
12th Dec 2018 10:41

Insolvency Practitioner wrote:

I've sued many directors for DLAs and/or illegal dividends once their companies have entered Liquidation.

Many of the insolvencies I have dealt with have come about due to the Directors bleeding the Company dry.

Ultimately unless the Director listens to your advice it could all end in tears. If a Liquidator pursues them personally for DLA/illegal dividends then they are at risk of personal insolvency (Bankruptcy etc) and losing their assets and income.

Yep they will be in big trouble if the company goes into liquidation. Its the usual problem that people see the company's money as their own to play with.

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