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Director's Self-Assessment

Director withdrawing money willy-nilly after going limited.

Good afternoon.

Wonder if anyone could offer advice:

Took on a self employed individual to submit their tax return. They were self employed between April 2017 and mid-June 2017 - they have bank statements and evidence and it's easy to compile these accounts for this period. They then went Limited - I assumed they would be paid through the limited company, again no problem!

The issue is upon reviewing the information they're withdrawing money/transferring money willy-nilly in the exact same fashion as they did when they were self employed - from reviewing a few months of this this is well over 2.5k a month.

This is going to cause huge issues for whoever then needs to compile their Limited Company accounts (it won't be me) - I can only imagine it will have to go to the DLA Account but then what's done with that? Other than that, claim it was a salary but what about RTIs? No recorded dividends and no allowances for CT etc

My question is this and my responsibiliy to submit their personal tax return - do I treat this as employment and record the money recieved and show zero tax paid on it and leave it to be sorted by whoever is unfortunate enough to take on his limited company accounts? What are my options without knowing what the future treatment will be in the limited company accounts.

At this point I'd happily give the whole lot back and take nothing to do with it! 

Any offer any advise on this?

Thanks!

Replies

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10th Jan 2019 15:30

Chester258 wrote:

What are my options without knowing what the future treatment will be in the limited company accounts.

It's "self" assessment. The client delegates authority to you, not responsibility. You need to ask him/her what his/her income was. On the face of it, he/she either has a large DLA (with attendant BIK) or salary with PAYE not operated or undocumented dividends - or a mixture of all/any.

Do you not know who is going to prepare the company accounts? It would make most sense to act in unison - if for no other reason than to get the client to see sense. What you cannot do is make any assumptions. It's for the client to say what goes on the return. If you don't like what you are told, disengage and consider MLR responsibilities.

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to Accountant A
10th Jan 2019 15:35

I have a meeting with the client tomorrow but there has certainly been a lot of transferring from the business (personal account but used for the business) to there's with no payroll operating, no dividend documented.

I'm going to speak to a couple of people I know at other firms and see if they want to take on their limited company accounts and then we can perhaps work together.

These are my thoughts, I got his information on 5th December but told him I probably wouldn't get chance to get to this before new year so only just had chance to look at this now - I've never had to drop a client before so a little uneasy about it but like you say, I have to protect myself also.

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10th Jan 2019 15:32

So this client has a tax adviser to prepare his personal tax returns and an accountant to prepare his company’s accounts, but has failed to put them in touch with each other?

If you are simply dealing with the client’s 2017/18 tax return before the company’s first accounts have been prepared, you can only work with P60s, P11Ds and dividend vouchers. From what you say there aren’t any.

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to johngroganjga
10th Jan 2019 15:40

We were appointed to handle his tax affairs for 2017/2018 - this is the first year we are acting for this client and he has not appointed an accountant to deal with his newly formed limited company - I do not handle limited company accounts/CT.

This is the case exactly - they have no payroll, dividend vouchers etc only bank statements showing funds moved to the directors bank account.

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to Chester258
10th Jan 2019 15:45

in which case, cancel the meeting,

You cant act for this client.

Send it back

"next"

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10th Jan 2019 15:47

Tell him sorry, "Company accounts first, SA second" as you don't do CT returns it's not your issue - tell him that.
I see a few of these - directors using the company's money as their own piggy bank.

They're not worth the hassle...

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to memyself-eye
10th Jan 2019 15:51

This is my thinking and the way it's heading - I assumed he had operated his Limited Company correctly from incorporation which would cause no issues for me.

Even if we did take on company accounts, I don't think I'd be too inclined to take on this one. I don't believe these actions were in any way meant to "steal" from the company but more likely a case of ignorance but I doubt HMRC would see it that way if not treated correctly.

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to Chester258
10th Jan 2019 17:10

Chester258 wrote:

I assumed he had operated his Limited Company correctly from incorporation which would cause no issues for me.

That's a hell of an assumption and not one that should be made in my opinion. That aside, no need to get stressed. Quite simply you can not do the job until the mess has been sorted out. Don't take a punt on it only to risk being put in your place by the belatedly appointed accountant.

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to andy.partridge
10th Jan 2019 17:31

I meant I had assumed this when I took the appointment - I haven't done anything in terms of the self assessment so made no assumptions there and reviewed all information.

I have been in touch with someone I know at another firm who is happy to take it on in principal and will discuss further tomorrow.

Nothing further I can do really until it's sorted.

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10th Jan 2019 16:35

" but there has certainly been a lot of transferring from the business (personal account but used for the business)"
Are you sure it is the limited companies income? I might have got the wrong end of the stick but if the money isn't going into the limited companies bank account but the directors personal account is it not all self assessment? You might have to dig further as to what is going on but I've heard of cases were HMRC have argued that its self assessment income not limited co. I'm sure I've seen posts on Acct Web in the past.

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to lesley.barnes
10th Jan 2019 16:44

The decision was made to go limited because it was required by the gas company that he was working for when he was self employed to continue his contract so he would then be billing them from his limited company so I don't think it would matter what bank account it was being paid into? - it's about who was billing for the work and who the funds belong to, if he's acting as a limited company the funds belong the company not him.

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to lesley.barnes
10th Jan 2019 16:44

The decision was made to go limited because it was required by the gas company that he was working for when he was self employed to continue his contract so he would then be billing them from his limited company so I don't think it would matter what bank account it was being paid into? - it's about who was billing for the work and who the funds belong to, if he's acting as a limited company the funds belong the company not him.

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10th Jan 2019 16:37

All I can say is... welcome to the real world of sole director companies.
If I've explained once I must have explained a million times to some of my clients that they are no longer self employed but work for a company just as if they worked for Sainsbury's. But I invariably get ignored and they just carry on so I have to sort out the mess at the end of the year.

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10th Jan 2019 16:55

Thanks for all the replies - I have advised the client that I cannot compile his self assessment return until his company accounts are dealt with (he has told me he's just been transferring money without any payroll/dividend etc) and that we don't offer this or feel comfortable taking it on.

I have been in touch with some people I know at other firms with the intention of working together/passing this on.

The first time I have had to do this but it makes good sense all round.

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11th Jan 2019 10:14

As Jennifer says, this is how nearly all small companies operate in my experience and I've never had any issues with HMRC ever. The DLA will be cleared by dividends which then go in the personal tax return. So you can't do the tax return until the dividends have been decided upon, ie by the accountants doing the limited company accounts. Some people on here don't like it, but that is what happens in practice.

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to kenny achampong
11th Jan 2019 11:44

Are you talking about time travel, Kenny? I hope not because that would be dishonest.

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to andy.partridge
11th Jan 2019 11:49

Maybe the director has a board meeting with himself whenever he transfers money.

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to kenny achampong
11th Jan 2019 12:13

Yeah, and is unable to articulate what he decided in his head and conveniently doesn't make a note of it. When the accountant asks he says, 'Dunno, it was there and I just took it. Keep the tax low, though, eh mate?'

I think we are learning a lot about you, Kenny, when you see a large, but awkward debit on the director's account.

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By Matrix
11th Jan 2019 11:02

If no salary or dividends were received in 2017-18 then I don't see what is preventing you from filing the personal tax return.

I have no idea why he has sent you the company records for the personal tax return. Just ask your usual questions regarding all sources of income. Engaging an accountant now is not going to change the past if no salary or dividends were declared. If a P11D is filed and the figures given to you then you may have to amend the return but you can only work with nil figures for now.

I assume you had already advised that you do not provide services to limited companies and advised him to source his own adviser when he set up the company.

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to Matrix
11th Jan 2019 13:41

He hasn't - he continued to use the same bank accounts after going limited so I was able to see what was going on.

Like you say though, it could easily be the case that I never saw any of the business stuff and assumed he opened the limited company but hadn't taken any salary for that period and submit the return on what I have BUT I have seen it and therefore it makes me a little uncomfortable.

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By Ian Bee
11th Jan 2019 11:39

I agree with Matrix. If there is no salary or dividend in 17-18 there's nothing to go on the tax return. There may be a tax charge on the overdrawn DLA but that is for the company.

But if there is a BIK for the interest free loan account, there should have been P11d submitted. I bet there wasn't one but that is a company issue.

Secondly the BIK on the loan should be included on the personal return which will be difficult without the company accounts.

You should tell him that without the accounts, he will be unable to submit a tax return as neither he nor you will know the amount of the BIK.

It may be possible to put in a return with estimated figures and full disclosure and hope that gets him off the late filing penalty, or just treat the penalty as a cost of ignoring the legal separation of the company from its shareholders.

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to Ian Bee
11th Jan 2019 13:42

I think the late filing may well be the least of his troubles so is that really worth it?

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11th Jan 2019 14:21

UPDATE:

I have now managed to get a bit more information.

There was an overlap between Self Employment and Limited Company work - they incorporated in June 2017; however, didn't start billing from their Limited Company until January 2018. Whilst they were paying themselves from January to April this doesn't come to too much.

I have referred an firm I know that are happy to take this and agreed to compile the Self Assessment with what I have and leave a small debit in the DLA that will be cleared as a dividend/salary in the next tax year.

Happily I can deal with this my end and leave the rest to company.

Many thanks for the replies.

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