Just fallen foul of an Acid Test Ratio - gutted
Discussion
Business won't be able to re-tender for a gig we have been on the framework for 10 years as it [i]looks[i/] like our debt exceeds our finances. This isn't the case, its just that as a small business the money to pay upcoming corp tax was snaffled away to a high interest account outside the main business account so did not show on the return the accountant prepared. Even if it had been kept in the business we'd still technically have been a bit 'light' as the tax bill isn't due for 9 month from date of return, so funds would be built up over that time...
I am a bit gutted and think most businesses wouldn't be sitting on their full corp tax funds for 9 months before it was due??? Am i right?
Ho hum!!!
I am a bit gutted and think most businesses wouldn't be sitting on their full corp tax funds for 9 months before it was due??? Am i right?
Ho hum!!!
Sounds as though the business is funded by director loans and repaid some of that cash with inevitable impact on the balance sheet. You can't have your cake and eat it.
Why didn't the business simply open a deposit account? Presumably because the interest rate would be 0.0000001% p.a.
Why didn't the business simply open a deposit account? Presumably because the interest rate would be 0.0000001% p.a.
Ken Figenus said:
I am a bit gutted and think most businesses wouldn't be sitting on their full corp tax funds for 9 months before it was due??? Am i right?
No, it is either the business's money or not. If you've taken it out it is no longer the property of the business.The accountant cannot count money belonging to someone else!
We save the corporation tax as we go so we have funds for last years corporation tax available in the business, and we save up this years’ as we go too. We leave it in a savings account attached to the business main account. It also could potentially serve as a rainy day short term fund, but has never been utilised as that would be a last resort.
trickywoo said:
Sounds like either you or the accountant have made a mistake.
The money is either in the business or it it isn’t. If it’s correctly on deposit through the business it will still be an asset, and recorded as such.
^This. (I think!). We've got money all over the place - it's still the company's money and shows on the balance sheet.The money is either in the business or it it isn’t. If it’s correctly on deposit through the business it will still be an asset, and recorded as such.
Thanks guys - guess I learnt a few lessons here!
The issue, as has been mentioned, was that HSBC Business acct allowed only ONE savings account which we use for input VAT stashing and it pays abysmal interest. So I used a non HSBC savings account that paid OK interest to squirrel the larger sums of corp tax away! It was still effectively the company's money and indeed has been used to pay corp tax and is long gone! But it just didn't look like it was the company's money - seems obvs now. Owner director micro business thing rather than huge multinational structured stuff!!!
HSBC permit two savings accounts now so this won't happen again. Accountant is going to see if he can fix it and resubmit to companies house.
If anyone learns from it great - ohh and i won't be paying myself or anyone late Feb through to March this year. Paying on April 1st instead keeps funds in the company that helps the accounts snapshot. #Lesson learnt.
The issue, as has been mentioned, was that HSBC Business acct allowed only ONE savings account which we use for input VAT stashing and it pays abysmal interest. So I used a non HSBC savings account that paid OK interest to squirrel the larger sums of corp tax away! It was still effectively the company's money and indeed has been used to pay corp tax and is long gone! But it just didn't look like it was the company's money - seems obvs now. Owner director micro business thing rather than huge multinational structured stuff!!!
HSBC permit two savings accounts now so this won't happen again. Accountant is going to see if he can fix it and resubmit to companies house.
If anyone learns from it great - ohh and i won't be paying myself or anyone late Feb through to March this year. Paying on April 1st instead keeps funds in the company that helps the accounts snapshot. #Lesson learnt.
rockin said:
That's a concept somewhat beyond "the usual way of things"! 
I know! But I am the business LOL but have now clipped my wings 
I guess what confuses me is the way that it 'looks' (bad!) v the reality (all good).
Must never stash the cash where it then appears out of the business.
Ken Figenus said:
Thanks guys - guess I learnt a few lessons here!
The issue, as has been mentioned, was that HSBC Business acct allowed only ONE savings account which we use for input VAT stashing and it pays abysmal interest. So I used a non HSBC savings account that paid OK interest to squirrel the larger sums of corp tax away! It was still effectively the company's money and indeed has been used to pay corp tax and is long gone! But it just didn't look like it was the company's money - seems obvs now. Owner director micro business thing rather than huge multinational structured stuff!!!
HSBC permit two savings accounts now so this won't happen again. Accountant is going to see if he can fix it and resubmit to companies house.
If anyone learns from it great - ohh and i won't be paying myself or anyone late Feb through to March this year. Paying on April 1st instead keeps funds in the company that helps the accounts snapshot. #Lesson learnt.
So to confirm, the account was in the business name? If so, your accountant can submit amended accounts with no issue whatsoever, other than you will have two sets of accounts at Companies House and the latest (and correct) will show they have been amended.The issue, as has been mentioned, was that HSBC Business acct allowed only ONE savings account which we use for input VAT stashing and it pays abysmal interest. So I used a non HSBC savings account that paid OK interest to squirrel the larger sums of corp tax away! It was still effectively the company's money and indeed has been used to pay corp tax and is long gone! But it just didn't look like it was the company's money - seems obvs now. Owner director micro business thing rather than huge multinational structured stuff!!!
HSBC permit two savings accounts now so this won't happen again. Accountant is going to see if he can fix it and resubmit to companies house.
If anyone learns from it great - ohh and i won't be paying myself or anyone late Feb through to March this year. Paying on April 1st instead keeps funds in the company that helps the accounts snapshot. #Lesson learnt.
It's concerning that this didn't get picked up by your accountant and is hard to get wrong if the amount we are talking about is considerable. Didn't you get asked what the withdrawal was? Did the amount moved to the corporation tax account get put as drawings (dividends?) in your name? How much was it in relation to your normal income from the business? There aren't many other choices of where it could go. Your ratios may not be the only problem.
And you're right about your 'company snapshot'. If any major 'indicators' change, I will always make the client aware before signing off the accounts.
Edited to add, you should know in no uncertain terms whether you are drawing too much money out the business.
Edited by MaxFromage on Friday 14th February 19:52
I think you mean Output VAT rather than Input VAT.....
Anyway I’m not sure why you’re resorting to having different bank accounts to keep track of different “pots of money”. A half decent accountng system (or even an Excel spreadsheet) will do it for you if you’re competent with numbers
Anyway I’m not sure why you’re resorting to having different bank accounts to keep track of different “pots of money”. A half decent accountng system (or even an Excel spreadsheet) will do it for you if you’re competent with numbers
Ean218 said:
Ken Figenus said:
But I am the business LOL but have now clipped my wings
The lesson you need to learn is that you are NOT the business. The two are entirely separate entities and you cannot just take money out will nilly and then "put it back".
I work on three distinct stages... 1/ Get as much money into the business as possible, 2/ Get as much of that out of the business as possible, and 3/ Ensure that what comes out is subject to the minimum of tax before it reaches me!
My girlfriend's mum is likely to have big issues with this lack of separation of business assets versus personal assets from what I have heard. She has a small business which she wants to get rid of. However, it seems to be all her living costs etc get paid from the business account. So I suspect not only is there a likely tax issue, but when selling it will be very hard/impossible to show how the business is doing as it is so mixed up with personal expenses. Not to mention that this is a business which cost $70 000 (Australian) to buy, with 50k loan from the bank and 20k loan from my gf, both of which have not been paid back anything during that time.
Drumroll said:
I don't see how she can sell the buisnes, because what you have described there is no business. Just a rather large debt.
Potentially it may have a value e.g. Land, premises, stock. It will also have suppliers and customers. The main thing is - how much profit is it generating and would the ROI be sufficient for a $70k capital investment.NRS said:
<snip>However, it seems to be all her living costs etc get paid from the business account. So I suspect not only is there a likely tax issue, but when selling it will be very hard/impossible to show how the business is doing as it is so mixed up with personal expenses.
Not so much a tax issue as tax fraud. When you run your own company the government gives you a lot of latitude to both know rules and follow them carefully.So you can run your living costs though a business, and pretty much no one will say anything - until you get caught, at which point they throw the book at you.
Gassing Station | Finance | Top of Page | What's New | My Stuff