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Write off of unknown debtors brought forward

Unable to obtain handover information - unknown debtors B/F

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Hi everyone,

I have recently obtained a client (Limited company) but have been unable to request handover information. This is because they have a payment dispute with the old accountant that will be going on for a long time (long story but client is not in the wrong, accountant carried out unathorised work and then billed an extrotionate fee for it which client is unwilling to pay. I know this is true as the old accountant was my last employer from 2 years ago so I am happy to proceed with the client).

Accounts that I have previously taken over from this old accountant have been somewhat lacking in quality so their balance sheets can really be taken with a pinch of salt (missed HP's, missed fixed asset additions, loans not accounted for etc), which brings me to my issue. I have gone back over the last 4 years of bank transactions to try and make sense of the 'other creditors' and 'other debtors' brought foward in their last set of accounts. I have managed to make sense of the 'other creditors' section but I have a 'left over' other debtor balance of just under £30,000 from the brought forwards that I just cannot work out its reason for being there. It is a material balance as the Company turns over around £120,000pa. 

I want to write this off as neither myself, nor the client, knows what this should be, but if I write it off through the P&L I assume it should be a write off with no tax relief - as I cannot vouch for what it was so could not classify it as a genuine expense?

Hope this all makes sense, any advice would be greatly appreciated. If you require any further information to assist me with this please just let me know. 

Thanks in advance.

Kelly 

Replies (20)

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By Matrix
03rd Oct 2020 14:49

I hope you have been paid if you had to go back 4 years and the client has previous.

I would book to the DLA.

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Replying to Matrix:
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By k3lly89
03rd Oct 2020 14:55

Hi Matrix,

Yes I have been paid to cover all of my fees to sort these accounts. They said they would rather pay me to get them right now.

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Replying to k3lly89:
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By Matrix
03rd Oct 2020 14:59

Great. If they want them to be right then you will need to find the £30k difference.

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By Paul Crowley
03rd Oct 2020 15:06

I would take a pragmatic view. Firstly has it been £30,000 for the last 4 years?
If so a bit of a problem.

Debtors are usually for money owed for something provided and on which tax has been declared.
So long as you are sure it is not a directors loan issue then choose probably bad debt and not disallow.

Was it really a version of work in progress? If so it was taxed
I have seen fictional debtors put in to make the dividends work, if that was the case, it was taxed

Do not think looking at bank statements is any help at all unless you are confident in the start point.
Unpaid debtors will not be on the bank statements

If Security deposit, then deposit was lost
If prepayments,costs were wrong
If materials bought for a big project, single client, then like work in progress.

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Replying to Paul Crowley:
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By k3lly89
03rd Oct 2020 16:24

100% sure it is not a directors loan issue as there was a DLA disclosure on the accounts confirming the balance at year end, so I was able to pick up that balance for the start of the period.

No, it hasn't been a consistent figure, it changes. Can't see it being WIP due to the nature of their business.

Myself and the client have thought about it in detail of what it could possibly be and neither of us can think of what it could/should be!

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Routemaster image
By tom123
03rd Oct 2020 17:28

A figure of a quarter of turnover and the client has no idea?

Many thousands of tax paid etc.

Is there a time when the figure did not exist?
Is there any bookkeeping?

Good luck, btw

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By SXGuy
03rd Oct 2020 19:14

And your certain everything else is correct?

I ask because it could be a made up figure just to make everything else balance.

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By JD
03rd Oct 2020 19:48

In the absence of any other information, I would take the approach of others and write off to DR A. At that level the client should know what it represents. However could this be some sort of year end value of work in progress/accrued income.

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By Wycher
03rd Oct 2020 22:44

Are there any ex directors or shareholders who could have built up a liability prior to leaving or inter company balances?

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Hallerud at Easter
By DJKL
04th Oct 2020 01:45

I suspect would try some broad brush reviews to start with.

I would maybe first try comparing the accounts turnover with say the four vat returns for each year (in an ideal world the vat quarters marry) see if anything particular stands out in any particular year then investigate that year. Whilst of course debtors are not sales, trade debtors do arise from sales.

Can you obtain the accounts for multiple years, is vat a constant 20%? If so, and if virtually all receipts arise from sales, then an excel sheet with opening debtors, gross sales, receipts, closing debtors which you then compare with the year end debtors figure for each year may also steer you in the right direction. (may only be useful if bank statements have monthly received totals (some banks do) as this is just adding 12 numbers for each year)

Other things to consider, is CIS on point, does client do work for his suppliers (could there say be a contra mucking things up) etc?

I personally would not write off £30k in any accounts of the size mentioned without finding out why, but nor would I start with very time consuming recreation of detailed sales ledger/similar until I got some sort of steer as to when this happened/what it might be.

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By adam.arca
04th Oct 2020 09:56

Some excellent advice above, particularly DJKL’s detailed (as usual) points.

I know it’s been mentioned but how confident are you that this £30k isn’t just a balancing diff and probably should be DLA regardless of the DLA disclosure actually made? Does the £30k suddenly appear one year and broadly stay the same (in which case probably something specific) or has it gradually been building up?

What about the previous accountant? Is he a member of a professional body? Can you threaten with the nuclear option?

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Melchett
By thestudyman
04th Oct 2020 11:25

Unfortunately it may take some time but you should go back to the point there was first a transaction in Other Debtors.

Just because the DLA ties up with the disclosures does not mean the underlying balance is correct if the Other Debtors balance has anything to do with it.

30k balance could have arisen earlier than the 4 years which you looked at through the bank statements.

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By Paul Crowley
04th Oct 2020 12:36

Is the disputed bill bigger than the cost of reconstructing 4 years accounts and losing £30,000 tax relief?

Is this a question of becoming a matter of principle that is more important than money

Your new client appears to be giving you lots of details that did not get given the your former employer.

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By I'msorryIhaven'taclue
04th Oct 2020 12:27

You could fire a shot across the bows by getting your client to issue a Subject Access Request. He cannot issue an SAR from the company, but could ask for details of all transactions across the years that involve him personally (in his capacity as a client, a director, and a shareholder); including DLA transactions, and all other transactions such as, for example, loans to persons or companies connected to him.

Alternatively, they might wish instead to forward a breakdown of the £30k Other Debtors figure (in which event the SAR would be withdrawn).

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By bernard michael
05th Oct 2020 09:55

Could it be a rental deposit ???

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Replying to bernard michael:
Hallerud at Easter
By DJKL
05th Oct 2020 10:35

That is one very large rental deposit for a business with £120k turnover.

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Replying to DJKL:
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By bernard michael
05th Oct 2020 10:51

DJKL wrote:

That is one very large rental deposit for a business with £120k turnover.

Risk averse landlord ??
Client had bigger ideas than the business could cope with
ETC..................................

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Replying to bernard michael:
Melchett
By thestudyman
05th Oct 2020 13:35

bernard michael wrote:

Could it be a rental deposit ???

This would make sense. I've worked in businesses where rent deposits would be shoved under "Other debtors"

Other things leaning towards it:

Nice round number (if its indeed 30k exact)
Balance has not changed over the last few years.

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By k3lly89
23rd Oct 2020 15:48

Hi All,
Thanks very much for all of your input.
This Saga is still ongoing.
It looks like we will get to the point where the only place it can go is the DLA due to the client having no idea, and it is probably some sort of adjustment that was only processed through a trial balance so no hope of finding it!
But thank you all for your messages, really appreciate it.

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By Mr_awol
23rd Oct 2020 16:04

Oh come on, you used to work there. Surely you know some of the other staff who could look it up for you.

(I'm joking, of course - or am i?)

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