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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5113
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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If in 2008 a limited company wrote a cheque deposit

Customer Question

if in 2008 a limited company wrote a cheque for the deposit on a place at a private school for £1,500 would the company need to pay tax on that deposit during that financial year as either income or as a dividend or can the company return the money into the company 7 years latter without having paid anything but corporation tax
Submitted: 2 years ago.
Category: Tax
Expert: replied 2 years ago.
Thank you for your question..It all depends how the transaction was recorded in the books back in 2008.A situation could be where the cheque for deposit was recorded in the balance sheet as a payment in advance and sat in the balance sheet as such year on year. In this scenario, return of the deposit would not give rise to income and/or corporation tax.It might have been recorded as a charge to Director's account in that year in which case the refund would be credited to director's account in the year of refund, again having no Corporation Tax (CT) implication provided directors' account remained in credit when the deposit cheque was issued back in 2008.The company would only pay CT on this money if for any reason it was expensed in profit and loss account back in 2008 as an allowable expense and the refund of it would be treated as other income in the current year and chargeable to CT. I hope this is helpful and answers your question.If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.
Customer: replied 2 years ago.
either way are you saying that it is legal (tax wise) for a company director of a company that is a public relations company to issue a cheque for a deposit on a place at a private school for their son or daughter in 2008 and then 7 years later return that money to the company, without at some point needing to pay any additional tax and during that time it is deemed company money even though it is not in the company bank account but in the school's account. the company is still live although it has not traded since 2011, ie it is pretty dormant
Expert: replied 2 years ago.
Thank you for your reply.
It is legal for a company to issue a cheque for a deposit as outlined by you.
I did make qualified statements... We are looking at/establishing the accounting and tax treatment of that transaction.
As i said earlier, the payment could have been debited to the director's account or had remained in the company balance sheet as amount receivable. Additional tax would only arise if the amount was charged to the director's account and it made the account in debit (overdrawn). Then it would have had tax implications.
Without knowing the exact background to accounting treatment at the time of payment it is difficult to state whether the action resulted in additional tax payable or not.
I hope this is helpful.