Accounts Questions - A few!!

Discussion in 'Accounts & Finance' started by livingthedreamok, Feb 13, 2019.

  1. livingthedreamok

    livingthedreamok UKBF Newcomer Free Member

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    Ok so a little background, need some accounts advise, I totally appreciate that accountants have their place, however I run a Ltd business which is service led, I have no assets, no creditors, I owe no one anything, I charge for my services and money that comes in goes to me as wages (split across min salary and dividends), so my questions are

    First Questions

    My accounts = £xxx sales (money in) - outdoing £xxx (money to me)

    That's my accounts (I appreciate there was others very small outgoings etc), do I really need to pay £700+ for an accountant? Am I missing something obvious to why I just don't do this myself?

    Second Question

    As I say I offer a design service so my charges are for my time and works, I never owe anyone, and if anything at the end of year I will be owed outstanding amounts etc

    Now appreciate I could ask my accountant direct, but can anyone explain why within my accounts there are amounts in the Creditors : amounts falling due within one year, they have been put in for the last two year

    But I don't owe anyone anything ever, so why would I have creditors amounts on the accounts?

    Third Question

    Having a healthy bank balance at the end of the year doesn't affect tax in anyway does it? it's an asset as I see it and I don't save any tax or company advantage of keeping this amount low unless anyone can advise otherwise

    Forth Question

    I work from home so the accountant put a rent charge through for the usage of my house, now I know this is quite common, but last year I ended up with an overdrawn DL account, so why did the accountant put this rent through, if by doing so reduced the profits and therefore the withdrawals to me went over the profit available, have they made a balls up!

    Fifth Question

    With point 4 above doesn't now mean I need to pay back the DL account this tax year and as such additional profits in the business will be needed to pay this back, so back to the point that by putting the rent through the books as actually placed everything in a much worser position then of not putting it through? or have i missed something
     
    Posted: Feb 13, 2019 By: livingthedreamok Member since: Feb 11, 2019
    #1
  2. STDFR33

    STDFR33 UKBF Big Shot Free Member

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    1) No you don’t need to but are you comfortable preparing statutory accounts and company tax returns?

    2) Could be anything. Could be corporation tax, VAT, PAYE etc. You need to ask your accountant.

    3) The company bank balance has no tax consequences. Transactions too and from the account may.

    4) No they haven’t made a balls up. You have by taking too much out of the company.

    5) You’ve missed something. But I don’t have the time to explain.
     
    Posted: Feb 13, 2019 By: STDFR33 Member since: Aug 7, 2016
    #2
  3. livingthedreamok

    livingthedreamok UKBF Newcomer Free Member

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    Ok so not correct figures but can you explain this then

    Scenario 1

    £50,000 net profits
    Less £10K tax
    = £40K available - pay £40K so no overdrawn account

    Scenario 2

    £50,000 net profits minus £3k rent outgoing added to accounts
    £47k net profits less £9,400K tax
    = £37,600 available - pay £40K creates a £2400 overdrawn account

    So as per question, why add rent outgoing if it forces an overdrawn account, I think it's a balls up as I hadn't taken more than wa available until the rent was added to the accounts, theres no law that states I have to declare rent
     
    Posted: Feb 13, 2019 By: livingthedreamok Member since: Feb 11, 2019
    #3
  4. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    weren't you paid the rent by the co?

    if yes you have taken out £43K causing the overdrawn DLA

    reduce divs by £3K so we have rent of £3K and divs of £37K and all is well with the world!
     
    Posted: Feb 13, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #4
  5. livingthedreamok

    livingthedreamok UKBF Newcomer Free Member

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    No wasn't paid the rent, it was done on the previous year I understand as a paper exercise to reduce the overall profits

    So they just repeated it, but I never declared it, it's not an outgoing it was simply added to the accounts
     
    Posted: Feb 13, 2019 By: livingthedreamok Member since: Feb 11, 2019
    #5
  6. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    well it is not necessarily an overdrawn DLA - if the £40K was declared and paid as a dividend then it's a dividend albeit £2.4K is regarded as an illegal dividend.

    That's why you need an Accountant to sort out these issues in the most tax efficient manor.
     
    Posted: Feb 13, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #6
  7. livingthedreamok

    livingthedreamok UKBF Newcomer Free Member

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    Yeh but I think this is what I am asking, why do I need an accountant who rocks up and says, I have put £3k rent through and oh by the way, as there isn't enough profits now you have an overdrawn director loan account by £3K

    Why wouldn't an accountant say, we aren't putting the rent through this year as it doesn't benefit the accounts and in fact would make your drawings become overdrawn
     
    Posted: Feb 13, 2019 By: livingthedreamok Member since: Feb 11, 2019
    #7
  8. livingthedreamok

    livingthedreamok UKBF Newcomer Free Member

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    I wasn't stating the £40K was a dividend, in fact the dividends were low, the standard low salary , however it appears as a "Advances" but it was explained that the overdrawn account is created due to monies being taken out over and above the profits, my point is the profits were reduced by £3k by adding the rent exercise

    Why put the rent through? this was done after the year end and on the accounts
     
    Posted: Feb 13, 2019 By: livingthedreamok Member since: Feb 11, 2019
    #8
  9. SteLacca

    SteLacca UKBF Ace Free Member

    1,395 271
    You seem to be misunderstanding several things. Whilst anything paid to you as salary (and associated items if applicable, such as Employers NI, employer pension etc.) are expenses of the company, dividends are not. Dividends represent a distribution of after tax profits.

    Not understanding that concept alone can lead to an overdrawn DLA.

    If your accountant put rent through (and I mean rent) without a corresponding entry on your personal Tax Return (and an attendant charge to personal tax) then you need to question this. There's no harm in a nominal use of home deduction, but £3k doesn't fly for that. At that point, it's rent, and taxable as income on you. There are other considerations here, especially if you are a homeowner. Business rates (if it isn't done correctly), the impact on private residence relief on sale of your property for capital gains tax purposes etc.

    And if your entire accounts consist of income, money to you, and rent, then there's a lot that you (and your accountant) need to learn.

    Oh - quick edit whilst I can. Has your accountant included his fees in the accounts, which you hadn't taken into consideration? That would also lead to an overdrawn DLA.
     
    Posted: Feb 13, 2019 By: SteLacca Member since: Jun 16, 2016
    #9
  10. livingthedreamok

    livingthedreamok UKBF Newcomer Free Member

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    I appreciate your response, but you just adding a whole bunch of stuff to try and counter an argument, there's no Employer NI, pension etc, the figures in the example aren't correct so "£3K doesn't fly" etc not helping answer the question

    If you add some valued response it would be appreciated, look at the scenario's above and explain the difference

    "And if your entire accounts consist of income, money to you, and rent,"

    This is the question, what rent, a rent figure was added to the accounts, on paper, and thats the part of this question, by adding it, you reduce the overall profits, look at the scenarios and explain what you saying using them exactly as they are, not adding a bunch of NI pensions etc
     
    Last edited: Feb 14, 2019
    Posted: Feb 14, 2019 By: livingthedreamok Member since: Feb 11, 2019
    #10
  11. SteLacca

    SteLacca UKBF Ace Free Member

    1,395 271
    You may want to re-read my reply properly. I specifically said "If applicable" with regards to NI, pension etc. If it's not applicable then fine. Do not, however, dismiss a reply intended to assist you.

    With regards to £3,000 rent for use of home (and this is your figure), how on earth do you justify it? The only costs allowable are the additional costs of heating and lighting involved with working from home. You could, potentially, claim a capital allowance for furnishings used exclusively for work, but that would be a separate item.

    So back to justification - what is the total of your annual bills for heating and lighting, how many rooms does your home have, how much time do you spend there on total, and of that, how much is working.

    You will quickly realise that £3,000 is excessive beyond the pale.
     
    Posted: Feb 14, 2019 By: SteLacca Member since: Jun 16, 2016
    #11
  12. livingthedreamok

    livingthedreamok UKBF Newcomer Free Member

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    Your not trying to assist though, your not reading the post, there is no £3K rent, I made the figure up just to show a scenario, but you don't want to accept that, you state "that my figure" so your motive is to wind things up rather then help answer the question

    "Ok so not correct figures but can you explain this then"

    So sorry I appreciate your input but your not trying to "assist" your just arguing, if you would like to add some valued comment, can you read the scenarios above and comment on the two versions, please ignore anything you wish to try and claim about furniture etc, and if you wish to assist please can you explain the two scenarios
     
    Posted: Feb 14, 2019 By: livingthedreamok Member since: Feb 11, 2019
    #12
  13. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    this is really quite simply - already explained it above.

    The other side of the £3K paper entry for rent in the P&L Account goes to your director loan account so you can draw this out - thats £3K you can take. Then you should have reduced your drawings to £37K making it up to £40K which is the same as your scenario 1 drawing £40K.
     
    Posted: Feb 14, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #13
  14. livingthedreamok

    livingthedreamok UKBF Newcomer Free Member

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    Sorry unless i'm missing it, but I don't see where it's easily explained

    Are you saying that in fact it makes no difference whether it was added or not?

    I can't seem to understand that if monies are drawn from a directors loan account, then there has to be sufficient profits in there, and if not, doesn't that create an overdraft as such and therefore why put the rent through?

    I'm trying to understand why it was done, I totally get it when as all businesses attempt to reduce their tax they claim any costs against profits, I get that, what I don't get is as I see it, doesn't the overdraft appear because there isn't sufficient monies and therefore by including the rent as an outgoing isn't that causing an issue not helping?
     
    Posted: Feb 14, 2019 By: livingthedreamok Member since: Feb 11, 2019
    #14
  15. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    no. By including it you have reduced your ctax bill by £600 (using your 20% tax rate) and you still able to draw £40K
     
    Posted: Feb 14, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #15
  16. SteLacca

    SteLacca UKBF Ace Free Member

    1,395 271
    Here's my "valued comment". I'm out. If you think you know better than me then work it out for yourself. I'll stick to helping those who appreciate it.
     
    Posted: Feb 14, 2019 By: SteLacca Member since: Jun 16, 2016
    #16
  17. livingthedreamok

    livingthedreamok UKBF Newcomer Free Member

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    Agreed, no I evidently don't know better, but it would help to get valued responses, not wind up responses where you don't even read the post and just keep posting stupid comments about made up figures

    Go and help others, but read their post's not just add arguments for the sake of it
     
    Posted: Feb 14, 2019 By: livingthedreamok Member since: Feb 11, 2019
    #17
  18. livingthedreamok

    livingthedreamok UKBF Newcomer Free Member

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    Ok great, so it doesn't make a difference to the DL?

    So scenario 2 doesn't actually happen if you add rent outgoing?
     
    Posted: Feb 14, 2019 By: livingthedreamok Member since: Feb 11, 2019
    #18
  19. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

    4,606 766
    yes no overdrawn DLA.

    Why didn't your Accountant explain all this to you?
     
    Posted: Feb 14, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #19
  20. livingthedreamok

    livingthedreamok UKBF Newcomer Free Member

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    Huh! but scenario 2 is what happened and I did end up with an overdrawn DLA, so lets say scenario 1 actually happened, would I still have an overdrawn DLA?

    I think that's my bad kind of, you kind of trust what he's saying and that "they know more than I do" it was only a few months later, that I couldn't work out why when he said you have an overdrawn DL as there wasn't enough profits, to then putting the rent through would reduce these profits? wouldn't it?

    You see the overdrawn DL is actually very close to the amount of rent declared, so I think that was my thinking, is having a £600 saving on CTAX more beneficial then say having a £3K overdrawn DL because sure the £3K needs repaying? (made up figures before mattey chimes in)
     
    Posted: Feb 14, 2019 By: livingthedreamok Member since: Feb 11, 2019
    #20