Hi,
I lost some money (cash in hand) from my business. Do I pay corporation tax on that still?
Regards,
Mike
Replies (15)
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If you lost the cash and didn't spend it on allowable expenses then mrme89 rightly says it will be treated as Directors drawings and yes you will still pay corporation tax on it as the Company never spent it.
What effect it will have on your personal tax bill will depend on the state of your Directors account in general
Despite Basil's excellent analysis, expect questions from HMRC if they pick up on it.
Reporting it as lost to the peelers might help. Obviously, they'll be completely useless in terms of helping you find it but you create evidence.
An excellent suggestion by Lion... report it, if you are going to risk claiming it as an expense, and in that statement, you will state you were out on a business trip, with the intent on using it for business.
It actually could have been stolen and you didn't realise it (a misplaced tenner that could have floated out whilst getting out your cash card is one thing, a "wad" is another.
I once "lost" my purse and, unbelievably to me at the time, my pocket had been picked. Spending on my card proved that! Luckily, I was getting on a bus, about the time it was picked, so quickly realised it had gone. I cancelled everything, but that was "just to be sure", and in all fairness I believed I had lost it. My faith in humanity!
You never know, but as Lion says, it might support your case if HMRC spot it, in the future.
As Basil says, if its substantial, you should be reporting it anyway. If its £100, the tax relief on it would be £20 and I doubt HMRC would even bother for that.
Whether you should claim it or not, is like a lot of things - a chance you take, in the hope it will fly, should you get an investigation. There are arguments for both sides. The only way you would get a definitive answer, is when taxman says no :))
It would help if OPs were less economical with the facts and say whether they're talking about ten bob or ten grand.
Numbers often colour the advice.
I diagree entirely with Basil's analysis. Until such time as the cash is spent for business purposes, the cash belongs to the director (assuming the OP is in fact a director) and the correct entry is to debit DLA. If and when the cash is found and/or the relevant expenditure is incurred then the entry can be reversed to the relevant expense account. As for treating the 'loss' in the same way as employee defalcation, Basil may want to consider HMRC's views where the person responsible is a director etc.
Company cash belongs to the director ?
Do we now potentially need to pay a s455 charge on petty cash drawn from the bank ?
I've enough on explaining that companies and shareholders are different legal persons to clients.
I don't expect to have to do it to professionals.
Possession is 9/10ths of the law.
My point is that when the cash hits the director's pocket it is no longer the company's. And yes - in theory petty cash drawn by, and held by, the director without being spent could give rise to a s455 charge. But we're presumably talking here about amounts that are more than 'petty' (just guessing) and which have been 'misplaced' by the director. I'd be interested to read the Taxation article that Basil refers to, but HMRC's guidance is quite clear on loss etc by directors - I'd be equally interested to read the distinction between acting in good faith and not, to which he refers.
HMRC draw a distinction in effect between a director's (i) acting in good faith and (ii) acting duplicitously.
Link?
I draw a distinction between cash and other assets. Cash has peculiar characteristics and clearly if the stock is of no use or value to the director HMRC may be more willing to accept loss of stock - depending on the circumstances. Where cash is concerned, good luck in convincing HMRC that it should not be treated as a withdrawal against the DLA. But I will reserve final judgement until I've read the Taxation article.
fawltybasil2575 wrote:
HMRC draw a distinction in effect between a director's (i) acting in good faith and (ii) acting duplicitously.Link?
I think the link is somewhere here BIM45255 (https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45855). Again, I think the deductibility depends on whether a) it's a genuine case of business loss and b) the circumstances appear to be such that the claim appears to be genuine.
Edit: i.e. from HMRC perspective
@Basil
Whilst I agree with the points put forward by yourself, the facts ["When I finally got time to go and buy the stuff I can't remember where I put the cash - looked everywhere"] haven't yet established that there was a loss. The OP doesn't remember what happened to the cash. Is that enough to satisfy the s.54 CTA/09 test? I think No.
The facts are undeniably vague but we can only accept what we're told and, perhaps, request clarification.