Using business account as personal account?

[Nannyplum2029]

I'm having a bit of an ethical struggle here. I've just become aware that my neighbours (who own their own business) use their company account for personal expenses.

The wife tells me that they put holidays, school fees, gifts, jewellery etc "through the business" and that they avoid paying more higher rate income tax as its through the company. Am I completely naïve or is this just wrong? Is this a tax dodge?

Just to put our relationship into context - we get along well, odd BBQ and Christmas drinks together - but not best buddies and probably wouldn't keep in touch if either moved away.

How does that even work when they do their accounts! I keep a record of everything I buy with the business account for our accountant, how on earth could they justify a holiday to hmrc!!

Are you sure it's a company account and one of them isn't just self employed?

I think you can pay for what you like out of whatever account you want to.
Unless their accountant is lying and risking being struck off, everything is accounted for anyway and there will be no tax rebate/ allowances for school fees, holidays, gifts and jewellery.
We buy lots of things through our business account as it has more money than other accounts, we can't claim anything back apart from legit business expenses.

Yes, it's a tax dodge - as you say, they are funding personal expenditure out of untaxed income. I would wait a while so they don't immediately connect it to you (although if they're telling people they only see infrequently... ) and then shop them to HMRC.

So what is your ethical struggle OP?

tribot

How do you know its pre tax and also could it be done through a Director's loan. Our accountant told us we could do this and we have done a couple of times.

The description Nannyplum gives is of personal expenses coming straight out of the business' money, NewLife. But I'm sure if it's all done legit through a director's loan (let's face it, it doesn't really sound like it) I'm sure the neighbours will be able to account for themselves to HMRC.

If it is a company their accountant will be putting personal items to the director's loan account where depending on the amount involved it is treated as a loan from the business to the directors or netted off amounts owed to the director from the business. Typically the directors vote themselves a dividend to clear the loan account at the end of the year.

Not dodgy but they do pay less tax as its a dividend return on capital invested rather than income tax.

If they are treating it as a business expenses then they don't have an accountant. Ring the HMRC reporting line and report - they will never know.

Ok, so maybe I'm jumping to conclusions but the wife has implied a couple of times that she can do what she wants with the business accounts and it all gets sorted with her husband and his finance people.

Would feel uncomfortable shopping them to HMRC but equally don't like the idea of them doing something dodgy when I feel like I'm taxed up to my eyebrows!

Nannyplum

If she says it gets sorted with her husbands financial people, even if they are doing something illegal they are probably covering their tracks.
However, she could mean she spends what she likes and then the legit expenses are sorted by the dh accountant.

I'm sure many of my clients at work would come out with the same sort of thing. It's a weird business preening that goes on None of them are actually doing anything wrong tax wise though as we are well able to sort business from personal and prepare as such

I just thought, we too could have had friends report if they had been like minded.
we had a family holiday alongside dh and I conducting R&D and Marketing in an area where we stayed.
Dh and my expenses were paid for by the business, but we didn't claim the cost for the rest of the family.
friends who wouldn't know this could just have heard me say business trip and thought the worst.