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Limited company using personal account

Limited company using personal account

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Hi there

I have recently set up a company and have been struggling to get a business bank account. After 3 month I finally have got a business bank account. During the 3 months period  I was using my personal account for expenses and business income. Now I want to transfer across to the business account. Will it be ok to make a lump transaction to the business account referencing it as company income?

Please advise?

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By Tim Vane
10th Jan 2015 19:59

This is something you should discuss with your accountant.

And you are now going to say you don't have an accountant, have transacted everything through your own personal account, have treated the company's assets as if they were your own, and can't see the problem with that.

You chose to go with a Ltd Company. If you did not budget for the modest cost of an accountant, then you are already in much bigger trouble than you realise.

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Replying to penelope pitstop:
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By cbp99
11th Jan 2015 22:11

Accountant in order to open a bank account?

Tim Vane wrote:

This is something you should discuss with your accountant.

And you are now going to say you don't have an accountant, have transacted everything through your own personal account, have treated the company's assets as if they were your own, and can't see the problem with that.

You chose to go with a Ltd Company. If you did not budget for the modest cost of an accountant, then you are already in much bigger trouble than you realise.

I think the OP does see a problem and is trying to remedy it. What the OP did not budget for was the incompetence of the banks who so often struggle to do something simple like open a bank account. There are good reasons for engaging an accountant at an early stage, but opening a bank account is something that most people would reasonably imagine they do not need an accountant for.

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By jford
10th Jan 2015 20:45

Yes
Do just that. Running a company through a personal account isn't ideal but what's done is done. A three month period won't be a major problem. Make sure your business and records show all the income and all the expenses that went through your personal account and not just the net figure you transfer across.

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By orchardacc
10th Jan 2015 21:19

It is not a legal requirement for limited companies to open a business bank account but it is highly recommended to allow clear distinction between company finances and the personal finances of the owners. A limited company is a separate legal entity from its directors and shareholders, and any money generated or spent by the company should be clearly recognisable to avoid any confusion.

As jford said, just transfer the all balance across and have proper record to support the ins and outs.

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By andy.partridge
10th Jan 2015 22:21

Not a problem?
I wonder how much the OP knows about BIK regs.

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By LuKosro
10th Jan 2015 22:38

Right

It makes a great deal of a difference to the Directors Loan Account. There`s been quite a large thread on this a few months ago. 

I treat the limited company income received in the director`s personal bank account as if it were a loan to the director (through the DLA). Any other views? 

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Replying to lionofludesch:
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By andy.partridge
11th Jan 2015 10:05

Correct

LuKosro wrote:

It makes a great deal of a difference to the Directors Loan Account. There`s been quite a large thread on this a few months ago. 

I treat the limited company income received in the director`s personal bank account as if it were a loan to the director (through the DLA). Any other views? 

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Replying to lionofludesch:
RLI
By lionofludesch
11th Jan 2015 14:45

Let's establish some facts

LuKosro wrote:

It makes a great deal of a difference to the Directors Loan Account. There`s been quite a large thread on this a few months ago. 

I treat the limited company income received in the director`s personal bank account as if it were a loan to the director (through the DLA). Any other views? 

What is the maximum balance outstanding on this loan ?

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By MBK
11th Jan 2015 13:11

@LuKosro

It depends on the documentation.

If there is a nominee deed stating that the director holds the money in his personal account for and on behalf of the company then it is nothing to do with DLAs. Even if there is no such deed, if the facts support the contention, that can be the position.

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Replying to Tax Dragon:
By ShirleyM
11th Jan 2015 14:26

What if the sole Director fell under a bus?

MBK wrote:

It depends on the documentation.

If there is a nominee deed stating that the director holds the money in his personal account for and on behalf of the company then it is nothing to do with DLAs. Even if there is no such deed, if the facts support the contention, that can be the position.

How would the creditors know of it?

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Replying to Tax Dragon:
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By LuKosro
11th Jan 2015 18:57

Y

MBK wrote:

It depends on the documentation.

If there is a nominee deed stating that the director holds the money in his personal account for and on behalf of the company then it is nothing to do with DLAs. Even if there is no such deed, if the facts support the contention, that can be the position.

I believe you are technically correct :). However, your point of view is an exception from the rule and it does bring in a number of complications. And it also puts the onus on the director and his / her accountant to prove that the "facts support the contention". Additionally, if the company was under IR35, the tax man would feel that he hit the jackpot. Or if the company received a full enquiry, how do you prove that BIK are fully accounted for? Even if you do everything by the book, it takes a much longer time than it otherwise would.

This will only come up in a very small minority of cases where it is impossible for a company to pass the credit check (often times when the director has CCJs or bankruptcy on his / her credit file). Even so, there are credit building business bank accounts which do not require a stellar credit score and which can be obtained from a number of financial institutions. 

 

 

 

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By MBK
12th Jan 2015 08:02

I'm not pretending the nominee route is perfect ...

..... and we can all find lots of examples where it would give rise to problems in specific circs. I certainly wouldn't want any of my clients to be relying upon it. But that doesn't change the legal position.

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Replying to Asim12:
Stepurhan
By stepurhan
12th Jan 2015 08:19

Legal position

MBK wrote:
But that doesn't change the legal position.
The legal position is that the OP is exposed to BIK and s455 charges, depending on whether a tribunal accepts their evidence to the contrary. That is even before considering that, in the OP's case, the account almost certainly has mixed business and private use. A trust deed requires the company money to be legally identifiable, which will almost certainly not be possible with a mixed use account.
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By MBK
12th Jan 2015 14:41

@Stepurhan

Don't agree with your analysis at all. How would you deal with such a client in practice? Would you follow the nominee document? Or would you prepare on the basis of o/d DLA etc? We don't start at the Tribunal. It is only there to rule in the event of disagreement with HMRC.

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Replying to Mr_awol:
Stepurhan
By stepurhan
12th Jan 2015 15:13

The latter

MBK wrote:
Don't agree with your analysis at all. How would you deal with such a client in practice? Would you follow the nominee document? Or would you prepare on the basis of o/d DLA etc?
What does the hypothetical nominee document say?

If an account is only used for company transactions, though in a personal name, it can say "Money in account X held on trust". If an account is used for all personal expenditure as well, then the director is clearly treating that money as theirs. If the client has legal ownership (it being in their name) and his actions show he has beneficial ownership as well (as he is paying his personal bills from there) then it is hard to see how a trust deed could be phrased to overturn that.

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By GuestXXX
17th Mar 2015 17:58

.

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By LuKosro
12th Jan 2015 17:06

Hi

What if the company might be under IR35? The taxman would surely say that this PSC did not even bother to separate his money from his "company`s money". 

PS: Just did a quick Google search and this list of business bank account providers for people with bad credit came up on the first page. I can`t recommend any of them, just saying that these account providers exist.

http://www.ukbankaccounts.co.uk/basic-business-bank-account/

Hope it helps.

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RLI
By lionofludesch
13th Jan 2015 09:09

Sometimes you've just got to do the best you can, even if it's not the perfect solution.

So - what's the balance outstanding on this DLA ?  At present, we don't even know whether it's overdrawn.

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Replying to atleastisoundknowledgable...:
By Howard Marks
13th Jan 2015 09:53

Huh

lionofludesch wrote:

So - what's the balance outstanding on this DLA ?  At present, we don't even know whether it's overdrawn.

 

I doubt the OP has the foggiest as to what you're on about!

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Replying to SXGuy:
By DKB-Sheffield
13th Jan 2015 10:57

So hows about..

Howard Marks wrote:

lionofludesch wrote:

So - what's the balance outstanding on this DLA ?  At present, we don't even know whether it's overdrawn.

I doubt the OP has the foggiest as to what you're on about!

To the OP - what was the income paid into the account?

If it's £1,000, I'm sure we can all assume (for the sake of the argument) that the maximum overdrawn DLA is less than £1,000)

We have all come across this situation I'm sure. If not, we've certainly all come across the situation where the client has paid money into or out of their personal account "by mistake".

Some businesses still run on a cash basis. Where a director has taken £5000 out of the till on one day, and on the next goes to a supplier and paid £2500 off their account and then goes to the bank to pay in the other £2500, would we be asking for nominee deeds, reporting BIKs and demanding s455 be reported on the loan balance whilst chastising them for not involving an accountant?

Clearly, if we are talking about £100K of income or so, the answers we give would be of stark contrast to those we would give for an income of £500?

Yes, there may be a BIK issue if the balance on the DLA was overdrawn by more than £5,000 and then it would be the interest which presented the BIK issue. I do not believe s455 to be of issue here as, the money has only been in the personal accounts for less than 3 months (per OP)  and hence, even if the company year end had coincided with the debt, it is only 3 months into the 9 month window so, would be repaid in full by the transfer of the money into the company account.

As for the theories and the possibility of the director being run over by a bus, the chances are that, as the OP is posting on this forum, they are neither deceased nor in hospital in a critical condition?!

As far as the OP is concerned... do what you have said and do it immediately to avoid any further repercussions. Make sure every penny is accounted for and where it can't be ensure to note this down as remuneration. If the company was owed £5,000 or more by you (i.e. the differential) in the period, you may be required to report this as a P11D expenses. Please do enlist the services of an accountant as they will be able to help you with many more things than simply setting up a bank account (which for many of the reasons stated, they would possibly not be able to assist). And clearly, when you do enlist an accountant, make sure you explain exactly what you have done.

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Replying to SXGuy:
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By lionofludesch
13th Jan 2015 12:29

Fair point

Howard Marks wrote:

lionofludesch wrote:

So - what's the balance outstanding on this DLA ?  At present, we don't even know whether it's overdrawn.

 

I doubt the OP has the foggiest as to what you're on about!

Fair point - and well made.

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By MBK
13th Jan 2015 14:51

Let's get real here

In the situation the OP describes, and where any one of us is preparing the accounts, the process will be:-

1: Identify the business txns through the personal account and treat them as if they were the company's

2: At the end of which you have a net balance arising from those transactions which needs to be either debited or credited somewhere.

3: Which is where some of us differ. If it was a debit and the evidence supported the trust / nominee argument then, to the extent that there was a balance up to that amount in the individual's personal account at the measurement date, I would debit an account in the nominal called something like "Bank account - held in name of individual". Any other remaining entry (debit or credit) would go to DLA.

But some would just post direct to DLA. I think that's wrong where there is trustee / nominee evidence. Others don't agree with that. We don't know who's right because there hasn't been a published case on it. Unless or until there is I will interpret things as favourably as I can for my client rather than adopt a legalistic approach. If others don't feel they can do that, then that's a matter for their professional judgement.

 

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Replying to John Stone:
Stepurhan
By stepurhan
13th Jan 2015 15:09

What evidence?

MBK wrote:
I think that's wrong where there is trustee / nominee evidence. Others don't agree with that.
What I don't agree with is that you can have trustee/nominee evidence in this situation, because there is no separately identifiable asset to be trustee/nominee of.

I asked earlier what you would put on a trust deed to identify what is being held on trust where a personal account has both company and personal use. As far as I can see you have not addressed that point. If you can provide a wording that would identify clearly, so it could be proved in court, what the individual is holding in trust then I and others would be most interested. If not, then what evidence are you suggesting can be relied on? Your "Bank account - held in name of individual" just seems to be a balancing figure. If that were £2,000 but the bank account in question only had a balance of £1,000 in it, what sort of trust would that be?

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By Justin Bryant
13th Jan 2015 15:21

secondhand_22
You say "I believe there was a case in which the "held on trust" argument was rejected because the client had used the account as his own". No chancery judge would give that as a reason to defeat such a trust (i.e. mixed funds, traceability etc. cannot be a reason to defeat such a trust, assuming it is otherwise valid), so that cannot be the reason. Assuming the 3 trust certainties would be satisfied, the only possible reason I can think of is if the trust was a sham (i.e. if he used the money as his own because the judge decided there was no real trust (binding the conscience of the trustee) and it was just a pretence to say there was a trust in the first place). I would be very interested if you can remember the case name.

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RLI
By lionofludesch
13th Jan 2015 15:45

I bet .....

I bet that, so long as the OP accounts for the transactions as though they were the company's and transfers the balance into the new company account, there'll be no problem.

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Replying to lionofludesch:
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By andy.partridge
13th Jan 2015 16:27

Depends

lionofludesch wrote:

I bet that, so long as the OP accounts for the transactions as though they were the company's and transfers the balance into the new company account, there'll be no problem.

Depends on a variety of things, not least the facts and the accountant.
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RLI
By lionofludesch
14th Jan 2015 09:53

As usual, Andy, facts are what we're short of.

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