This question gets asked a lot on accountingweb and UKBF and from all the research I've done it appears that a limited company is not legally obliged to have it's own bank account, however it's generally considered best practice.
I'm guessing his terms and conditions from his bank would state the account they have given him is for personal use only, so if they find out he's using it for his limited company they may withdraw it and then he will have trouble opening an account elsewhere.
Also as the bank account is in his name it's going to cause major issues with book keeping, paying dividends (unless he has another bank account), money laundering etc and may cause him to be in a lot of trouble if the limited company goes into administration or insolvency as the IP would take control of his single bank account.
Personally I would tell him that to comply with the MLR it's your firms policy to only engage with limited companies who have a seperate bank account, if he still refuses to get one setup then let him be someone elses problem.
"While a limited company is not legally obliged to open a company bank account and use it to operate its business, it is overwhelmingly recommended that it should do so. Apart from the obvious accounting convenience of having all relevant company bank transactions in the one, proper place, the company can run into considerable legal and tax difficulties if the business is run through the private bank account of a director."
-- Edited by Paul on Wednesday 14th of November 2012 10:09:51 PM
I have been approached by a limited company (one man band) to do corporation tax return and director's self assessment. He mentioned that he doesn't have a business bank account but uses his personal one. He has changed the name of his account to the business name (which is basically his name plus the type of business) online but isn't sure if that is an official change and his personal transactions still go through the account. He is reluctant to open a separate account due to bank charges. On investigation I can't actually find anything which states that a limited company must have a separate business bank account. Does anyone have anything that says it is legally necessary?
I haven't met with him yet but would like a definitive answer on this one at our first meeting.
I thought if you were Ltd company you had to have a business bank account? (I could be wrong though).
Really if he is LTD he should have a separate bank account, and its my biggest pet hate people that don't do it. If he goes on line there are lots of bank that offer FREE banking for say 18 months - 2 years, so he won't be hit straight away!
I know. And I agree with you completely. But I can't actually find anything anywhere that stipulates this! And without proof he's not going to change. He said he'd been told by several other accountants previously but has ignored them. I need proof!
Sounds like a right plonker if hes ignored the other accountants!
What's his record keeping like, I bet hes a messy buggar!
Good luck with him you may well need it! Sounds like even if he had a LTD account he probably use it as his personal piggy bank anyway. Don't you just love this type of client!
No other bank account, just the one. He uses spreadsheets. Should be fun. I'll meet with him and see. Maybe I can persuade him to open a new bank account and to let me do the bookkeeping from now on. Actually I think he'd be better off being a sole trader by the sound of it. Tomorrow's plan - investigate winding up a company. Any tips?
Silly question but how does he intend to pay dividends ? Or is he planning on just taking cash out when he feels like it ? If it's the latter then explain to him if the Limited company has any financial issues then his creditors can ask for any dividends for the past number of years (6 I think) be returned as they would be classed as illegal.
As you say he may as well be a sole trader, but he sounds like a nightmare so unless the fee is big then avoid!
Sorry can't help on winding up a company as I specialise in R&D tax relief claims, good luck though.
I have a sole trader who promised me this time last year that he was going to get a business bank account. HEs only small anyway but its my pet hate, well his books have turned up at last (been asking since August), and hes made an effort, its in month order, so I thought that was good, but NO business bank account still!!! Some just won't change and I would suggest that if hes not willing to change, you may be best to leave well alone like Paul says above.
Some just aren't worth it unless the fee is very large!
Not a major issue if a sole trader doesnt have a separate business accounts as the sole trader is the same legal person as the individual so really up to them as to where they bank the monies.
More problematic as stated above if a ltd company doesnt have a separate business account. Dont think is a legal requirement to keep a business bank account but surely if you dont then you contrevene Companies Act rules as you are not keeping proper books and records ie money is being banked and paid out by another person. To the extreme this could contrevene MLR.
But if your potential client has operated this was to date then dont see the above forcing them to change.
Thanks for all your replies. I will have to see how he's handling dividends etc, I suspect he probably isn't! I can't really afford to let him be someone else's problem, I've only just started out and am not making enough money yet to turn people away. He only runs a small business, there won't be that many transactions, I will stick it all in Quickbooks and see what comes out the other end. I will tackle the bank account with him and make it clear in writing what he should be doing. It's all good practice!
Get the client to sign a duff form that gives you a get out of jail free card.
Basically the form will state that in the event of HMRC overriding the veil of incorporation due to the business not being run with total separation of personal and business finances then you have informed the client that the business should have been run as a separate entity. Including separate banking facilities.
The letter isn't worth a great deal in the greater scheme of things but official looking forms to sign often make clients wake up and smell the coffee when they realise that professionals are planning exit routes from their entanglement in the business.
Sometimes one can lead the client to the right decision, other times you have to beat the right decisions into them (that's figuratively speaking, not literally!), occasionally you have to walk away.
I don't think that this client is a walk away yet (although I would have dumped them myself) and I don't think that you can make them do the right thing by force as they don't appear to listen so use slight of hand and try and get them to come to the right decision themselves.
As an aside you're fee's need to reflect not just your time but also the risk inherent in a client. There's little that you can do about this one now without losing them BUT, going forwards, make analysis of the way that a client runs their business part of your MLR / take on procedures before setting a price.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I haven't taken him on or set a price yet. We have only had an intitial phone call. First meeting is next week. It seems he has used a number of different accountants in the last few years, which isn't ideal. I will have a look at what he has and if I think it's dodgy I won't do it. But if I can persuade him to let me scrap his spreadsheets and do the bookkeeping throughout the year I will probably take him on. We will discuss the bank account. He's been told by others so he knows it's coming... It's difficult to know how much to charge him actually. He stopped using a high street firm as they were too expensive. He wants corporation tax, company return and self assessment doing. It's a low number of transactions. Anyone have any gut feeling as to a number. Difficult without seeing everything obviously but any roundabout estimate would help.
Considering the other revelations about this clients attitude then £400+
There is a reason that they will have gone through so many accountants and I suspect that the dumping was not all one sided.... Has the potential client left a series of unpaid bills behind them?
Have you asked the potential client yet for permission to contact the previous accountant? Look at what their reaction to that question is.
Get your ettiquette letter prepared to make sure that the previous accountant knows that they are no longer going to be working for the client.
Also, make sure that your PII covers you for all the services that the client requires of you.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Price wise I would say probably £720 for accounts, comp tax return and personal tax return.
I would get them on a monthly standing order so that everything is paid by their year end. Though if near their year end I would probably stagger 2 years fees over the period to the end of the 2nd year.
Any bookkeeping work would be over and above this.
Just to answer the question, I was told by a client previously that to not have a business bank account was 'illegal', but like you couldn't find anything anywhere.
However, I would check that the cheque signatory section shows the legal information stating clearly the cheque is issued on behalf of X limited as per the guidelines below (see limited company, comment about cheques).
