Paying salary / furlough with NO sales for a year

Didn't find your answer?

A client (an ltd company) has had not sales coming in for nearly 2 years and, yet, the director wants to be paid a monthly salary. When I ask her about her trading status she tells me that she is planning to have sales soon and that she is "working on it". Every month, she transfers personal funds into the company and pays herself a salary. The same happened just before claiming the furlogh. I asked her if she had trading income coming in during the last accounting year and she said 'yes'. Two furlogh claims have been filed so far. But now, I have just prepared her accounts for the last year and could see that, again, it was all her personal funds transfered to the company, not sales. In the meantime, I have kept reporting her salary to HMRC. She is a nice person but always plays a bit "naive". Please advise what I should do. Should I refuse to work with this client?

Replies (17)

Please login or register to join the discussion.

avatar
By Paul Crowley
08th Jul 2020 18:22

Wow! You are going to get a thunderclap of disapproval, me included.

Thanks (0)
By Tim Vane
08th Jul 2020 18:32

There is probably nothing wrong with her paying a salary from the company, assuming she really is "working on it" in terms of sales.

However, she has fraudulently claimed furlough (a company with no sales and no work before or after the crisis cannot have been adversely affected by COVID-19) so you'll need to advise her to make a correction and also file a SAR in accordance with your MLR obligations.

Her response to the request to make the correction will no doubt steer your future relationship one way or the other.

Thanks (2)
Replying to Tim Vane:
avatar
By ltdaccountancy
08th Jul 2020 18:45

I really appreciate your clear answer, Tim.
If she agrees to make the correction, should I still file a SAR do you think? Or the SAR would be more about her moving money in and out of the company?
Can it be, in some way, OK for her to put money into the company and pay herself a salary if she told me the sales are coming, say, the following month?
Thank you!

Thanks (0)
Replying to ltdaccountancy:
avatar
By Wanderer
08th Jul 2020 18:57

Quote:

I really appreciate your clear answer, Tim.
If she agrees to make the correction, should I still file a SAR do you think? Or the SAR would be more about her moving money in and out of the company?
Can it be, in some way, OK for her to put money into the company and pay herself a salary if she told me the sales are coming, say, the following month?
Thank you!

It's okay for her to move money in and out of the company in the way you say. A SAR would be necessary if you suspected she was dishonest in obtaining the CJRS monies. Also a SAR would be required if she dishonestly retains them after being advised that they shouldn't have been claimed (if that is your conclusion).
IF she was merely naive, but not dishonest, AND she agrees to repay them (if they were wrongly claimed) then no SAR required.
Thanks (1)
Replying to Tim Vane:
avatar
By davidbarry
10th Jul 2020 10:52

Would you mind letting me know what a SAR is and what it stands for. Thank you.
MLR presumably stands for Money Laundering Regulations.

Thanks (0)
Replying to davidbarry:
avatar
By Wanderer
10th Jul 2020 11:36

Suspicious Activity Report.

Thanks (0)
avatar
By Merseyside Mike
08th Jul 2020 18:34

Why is she transferring her own money to the company in order to pay it back to herself? Very strange behaviour.

The furlough claim sounds like it is in breach of he rules as her "operations haven't been affected by coronavirus".

Something sounds very much amiss.

Thanks (1)
Replying to Merseyside Mike:
avatar
By Paul Crowley
08th Jul 2020 19:01

Free qualification for state pension
No further comment

She is a nice person but always plays a bit "naive".

Really?

Thanks (2)
avatar
By Merseyside Mike
08th Jul 2020 18:35

Duplicate - sorry

Thanks (0)
avatar
By Wanderer
08th Jul 2020 18:51

From the (original) regulations:-

Quote:

2.1 The purpose of CJRS is to provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of furloughed employees arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease.

Quote:

2.5 No CJRS claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of CJRS.

Think it highly questionable whether the CJRS claims made are valid. Certainly not within the spirit of the scheme.
Moreover as you say "she is "working on it"." in relation to sales then she is definitely in breach of the rules to claim!
Thanks (2)
avatar
By Matrix
08th Jul 2020 19:31

If the company is no longer trading then the salary is not tax deductible. If it is still trading then I would document more fully, ask her for a proper response.

Thanks (2)
avatar
By lesley.barnes
08th Jul 2020 20:19

Could she be using this sham employment to claim working tax credits or other benefits as well as NI towards a pension? Do you know were the money is coming from to loan the company? It's very odd behaviour.

Thanks (2)
blue sheep
By NH
09th Jul 2020 06:10

As others have said to claim the furlough she would need to have been adversely affected, however to play devils advocate here I don't think its a given that she has not been adversely affected.
It would be very unusual yes, but potentially she might have been working on something that has taken a long time to come to fruition, she might have been expecting income in March that has now been put back because of Covid, she might even have signed contracts and correspondence to prove it.
Admittedly it is unlikely but you need a full response from her regarding the whole situation, there is nothing sinister in paying a wage to a Director while they are developing a business

Thanks (2)
Replying to NH:
avatar
By lesley.barnes
09th Jul 2020 09:05

I don't think you are playing devils advocate, people would agree that there is nothing sinister in paying a Director from a DL while they develop a business. I recently had a new limited company do this for a couple of months until they built up contacts and got work.

The thing that made it not right for me was the length of time - 2 years, a suggestion from the OP that the company had traded previously and the sentance
"I asked her if she had trading income coming in during the last accounting year and she said 'yes'" the OP then goes on to say they have just done the accounts and the only income is DL. It doesn't add up for me. The OP needs to do a bit more digging.

Thanks (0)
By ireallyshouldknowthisbut
09th Jul 2020 10:01

Makes a change for claims with no sales, I have been getting narked at the number of quote I have done this week (3) in which the client is claiming relief for a non-working spouse (3) and the business seems to be trading as normal.

In each case the client said "my accountant said everyone was claiming it, so we can claim it". in each case I asked "so how has the non working spouse's role changed? " To which...........resounding silence. I have binned 2 of them already.

Thanks (0)
Replying to ireallyshouldknowthisbut:
avatar
By Paul Crowley
09th Jul 2020 15:42

I agree
Snouts in trough by outright unentitled

Thanks (0)
Replying to ireallyshouldknowthisbut:
avatar
By Paul Crowley
10th Jul 2020 11:06

Not sure I delieve the "my accountant said". If he did why would they move, as have the kind of accountant they want? Their accountant probably binned them as well.

Thanks (0)