Buying personal things via a private limited company

Discussion in 'Accounts & Finance' started by CastleBoy, Nov 7, 2019.

  1. CastleBoy

    CastleBoy UKBF Contributor Free Member

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    Hello all

    I am sorry to ask a silly question here, but I always want to know what will ‘actually’ happen when someone (such as a business owner or a company director) bought a personal item via a private limited company so that he/she doesn’t need to pay VAT. And also, can HMRC ever find out such purchase please?

    Many thanks!
     
    Posted: Nov 7, 2019 By: CastleBoy Member since: Nov 7, 2019
    #1
  2. STDFR33

    STDFR33 UKBF Big Shot Free Member

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    The VAT isn't reclaimable and the transaction goes to the directors loan account.

    The director will have to repay the company for the purchase unless they are sufficiently in credit to offset the purchase against their existing DLA balance.

    In short, it's a stupid thing to do.
     
    Posted: Nov 7, 2019 By: STDFR33 Member since: Aug 7, 2016
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  3. paulears

    paulears UKBF Big Shot Full Member

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    I guess you mean that the person buys something for the company and takes it home? In short, if the item is the kind of thing the company buys normally, then only having 20 large screen TVs when there should be 21 is unlikely to be noticed. Buying a large screen TV for the business when you sell dog food would probably look a bit odd.
     
    Posted: Nov 7, 2019 By: paulears Member since: Jan 7, 2015
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  4. CastleBoy

    CastleBoy UKBF Contributor Free Member

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    Thank you so much for your message.

    Sorry to ask another silly question, what is directors loan account please?

    If the person only repays the company for the purchase minus the VAT, am I right to say that is VAT fraud, or is it something else?

    And again, what is the consequence of doing such thing?
     
    Posted: Nov 7, 2019 By: CastleBoy Member since: Nov 7, 2019
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  5. paulears

    paulears UKBF Big Shot Full Member

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    They cannot get around paying the VAT, but they could sell it at a loss.
     
    Posted: Nov 7, 2019 By: paulears Member since: Jan 7, 2015
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  6. STDFR33

    STDFR33 UKBF Big Shot Free Member

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    Directors loans:
    https://www.gov.uk/directors-loans

    The company still can't reclaim the vat. So the director would still have to repay the amount inclusive of Vat or there may be tax consequences of an overdrawn directors loan account.
     
    Posted: Nov 7, 2019 By: STDFR33 Member since: Aug 7, 2016
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  7. CastleBoy

    CastleBoy UKBF Contributor Free Member

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    It’s similar to your example but the person buys a digital camera, an iPad and a laptop for himself/herself through the company which is an advertising company. So the purchase can be seen for the company, but in fact it is for the individual, the purchased items are not for the company at all.
     
    Posted: Nov 7, 2019 By: CastleBoy Member since: Nov 7, 2019
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  8. Mr D

    Mr D UKBF Legend Free Member

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    And presumably they could claim, if ever investigated, that the goods were for the company?

    They buy the stuff, they pay whatever VAT the seller has to charge them.
    If they decide to sell to the company that's up to them, however unless they themselves are vat registered they cannot charge vat.

    If company buys the goods then the company pays whatever vat is charged by the seller.

    If simply sold to the person by the company then no vat is charged if company not vat registered.
     
    Posted: Nov 7, 2019 By: Mr D Member since: Feb 12, 2017
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  9. Adam93

    Adam93 UKBF Regular Free Member

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    Why is this forum so tolerant to fraud?

    If the company paid for anything for private use, there would be a benefit in kind for the director reportable on the p11d (with a few exceptions).

    The fact that you don’t know what a directors loan is, I would strongly encourage you to engage an accountant because a little knowledge is a dangerous thing.

    The ‘sell at a loss’ comment above is incorrect. For VAT purposes, a transfer will be treated at market value for the purposes of VAT between two connected persons, not to mention the benefit in kind issues at selling below market value.
     
    Posted: Nov 8, 2019 By: Adam93 Member since: Jan 18, 2018
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  10. CastleBoy

    CastleBoy UKBF Contributor Free Member

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    Thanks for the comments
     
    Posted: Nov 8, 2019 By: CastleBoy Member since: Nov 7, 2019
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  11. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

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    HMRC may find it, or become aware of it, they may not, it's like any other crime some people are caught, some aren't.

    HMRC have many ways in which they become aware of VAT fraud including random checks of VAT records and company records.

    Do some Google searches on VAT penalties, VAT evasion and VAT fraud.
     
    Posted: Nov 8, 2019 By: MyAccountantOnline Member since: Sep 24, 2008
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  12. paulears

    paulears UKBF Big Shot Full Member

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    I love the various comments here that cover the entire spectrum of totally and utterly 100% legit, to the do it and say nothing at the other end, but I doubt any of us could ever claim to be at the righteous end. Of course, the big problem is that most of us do these things to some degree, then pretend to everyone else we didn't.

    It's also actually difficult to even itemise, because as I'm a sole trader, I buy loads of things for my business. I will use one transaction of mine that seems to defy common sense. I bought a drone. We have lots of video and audio equipment and having a drone to get aerial shots seemed a thing I fancied having a go at. So the business bought one. I learned to fly the thing - to a degree, discovered I have no talent whatsoever at making the thing do it's stuff. I decided a few thousand for the PFCO CAA licence would be a waste of money, so I use it for things where it cannot generate money, because commercial use of it is banned. I still 'play' with it a bit. I might use the footage for practice, or just to see how bad I still am - but I am not selling the material it produces because that is the law. However, it's a business purchase that's just wasted money really - but fun from time to time.

    I print a few pictures for my daughter in law on the office printer, paid for by business funds using business ink and business paper.

    I've also bought items for the business, had them sit on the shelf unused and sold them for less than I paid for them. How on earth would these kinds of activities be tracked? If I sell something for £100 plus VAT that I paid £200 for, there is no defrauding of VAT is there? I suppose it all rests on how our 'stay legal' score sits with us personally. I really do not believe any of us will be approaching 100%. We're human. Defrauding HMRC in any way is not my way of doing it, but should I really be making a note of the difference in VAT claimed on 100 sheets, rather than maybe the 93 that it really is? I'm not even sure I know how to do that in the accounts.
     
    Posted: Nov 8, 2019 By: paulears Member since: Jan 7, 2015
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  13. SteLacca

    SteLacca UKBF Ace Free Member

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    That was the thought going through my mind as I read responses.
     
    Posted: Nov 8, 2019 By: SteLacca Member since: Jun 16, 2016
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  14. CastleBoy

    CastleBoy UKBF Contributor Free Member

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    Believe it or not, it doesn't take much for me to be confused with the whole thing. If I give an example here, please tell me whether it is VAT fraud, or VAT evasion, or both, or none of them.

    I buy a laptop through the company for my personal use intentionally. The company pays £1,200 (£1,000 + VAT) for the laptop. Once the laptop is delivered, I pay the company £1,000 and take the laptop home, saving myself £200 on VAT. As I work for an advertising company, the purchase should seem normal to HMRC. But the truth is the laptop is not bought for the company, but for my personal use at home.

    I must clarify I did not do above, I only use the above to explain what I wanted to understand.
     
    Posted: Nov 8, 2019 By: CastleBoy Member since: Nov 7, 2019
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  15. SteLacca

    SteLacca UKBF Ace Free Member

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    It's not fraud if the company accounts for VAT on the laptop of £166.66 (£1,000/6). However, there is an argument that a personal benefit in kind arises since you have, effectively, bought it under value.
     
    Posted: Nov 8, 2019 By: SteLacca Member since: Jun 16, 2016
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  16. Mr D

    Mr D UKBF Legend Free Member

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    And the company you are purchasing from is not VAT registered?
     
    Posted: Nov 8, 2019 By: Mr D Member since: Feb 12, 2017
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  17. CastleBoy

    CastleBoy UKBF Contributor Free Member

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    Thanks for the comment. My next question is, what about the corporation tax?

    The corporation tax is now reduced due to the outgoing expense (buying a laptop).

    I am paying £1,000 to the company for the laptop, so the company saves some money on the corporation tax while I save myself £200 on the VAT. That is still not fraud, is it?
     
    Posted: Nov 8, 2019 By: CastleBoy Member since: Nov 7, 2019
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  18. CastleBoy

    CastleBoy UKBF Contributor Free Member

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    It is VAT registered.
     
    Posted: Nov 8, 2019 By: CastleBoy Member since: Nov 7, 2019
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  19. SteLacca

    SteLacca UKBF Ace Free Member

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    The company hasn't just incurred the cost of the laptop as an expense. It has also made a sale of £1,000 (to you), and possibly saddled you with a personal tax liability as well.
     
    Posted: Nov 8, 2019 By: SteLacca Member since: Jun 16, 2016
    #19
  20. Mr D

    Mr D UKBF Legend Free Member

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    Then is the company required to charge you VAT on the sale?
     
    Posted: Nov 8, 2019 By: Mr D Member since: Feb 12, 2017
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