Company accounts - dodgy?
Mouton
Posts: 13 Forumite
I have a question about company accounts, and I wondered if anyone with knowledge of debt loading would be able to answer.
Background: A group of former contractors who have supplied work for this company (let’s call it Bob Ltd) have been comparing notes and discovered that the director was taking a 50% cut of all payments toward work done solely by his freelance contractors. This cut *could* be described as a finder’s fee or branding and is not illegal, but it is dishonourable given the director’s frequent claims of a lack of available funds for pay rises etc.
The director of Bob Ltd is known to be something of a shady character. He does not always pay invoices, squirms out of paying expenses and will do anything to keep money flowing through Bob Ltd rather than through another body (a public sector body that also employs him) that could pay these contractors on time. Bob’s director and his contractors sometimes share an office at this public body. The contractors bill Bob Ltd, and Bob Ltd bills the public body. Sometimes charitable bodies use Bob Ltd to pay the contractors.
We know that Bob Ltd is a company with very low overheads. At most, it will have one dedicated room at the director’s house, filled with equipment that will be worth a few thousand (under £10k). It will require a broadband connection, heating and light, but nothing else. Bob Ltd will employ two/three contractors annually, and pay them a maximum of £20k. Travel expenses for the contractors and director would not exceed £10k annually.
Why, therefore, might Bob Ltd’s accounts look like this?
2017
Current assets: £180000
Investment property: £160000
Amounts falling due within 1 yr: £110000
Net assets: £220000
2016
Current assets: £280000
Investment property: £70000
Amounts falling due: £300000
Net assets: £50000
2015
Current assets: £300000
Investment property: £70000
Amounts falling due: £60000
Net assets: £310000
2014
Current assets: £170000
Investment property: £70000
Amounts falling due: £40000
Net assets: £210000
Why would a company like this suddenly owe £300k in debt? I don’t understand how his outgoings could ever be that high unless he was somehow fiddling it to owe himself. And what is the ‘investment property’ in his fixed assets all about? I wonder if he has tied the office in his house to the business, or secretly bought a building somewhere and claimed it as a business property.
I appreciate that this will be guesswork, but any insights for this clueless poster would be appreciated.
Background: A group of former contractors who have supplied work for this company (let’s call it Bob Ltd) have been comparing notes and discovered that the director was taking a 50% cut of all payments toward work done solely by his freelance contractors. This cut *could* be described as a finder’s fee or branding and is not illegal, but it is dishonourable given the director’s frequent claims of a lack of available funds for pay rises etc.
The director of Bob Ltd is known to be something of a shady character. He does not always pay invoices, squirms out of paying expenses and will do anything to keep money flowing through Bob Ltd rather than through another body (a public sector body that also employs him) that could pay these contractors on time. Bob’s director and his contractors sometimes share an office at this public body. The contractors bill Bob Ltd, and Bob Ltd bills the public body. Sometimes charitable bodies use Bob Ltd to pay the contractors.
We know that Bob Ltd is a company with very low overheads. At most, it will have one dedicated room at the director’s house, filled with equipment that will be worth a few thousand (under £10k). It will require a broadband connection, heating and light, but nothing else. Bob Ltd will employ two/three contractors annually, and pay them a maximum of £20k. Travel expenses for the contractors and director would not exceed £10k annually.
Why, therefore, might Bob Ltd’s accounts look like this?
2017
Current assets: £180000
Investment property: £160000
Amounts falling due within 1 yr: £110000
Net assets: £220000
2016
Current assets: £280000
Investment property: £70000
Amounts falling due: £300000
Net assets: £50000
2015
Current assets: £300000
Investment property: £70000
Amounts falling due: £60000
Net assets: £310000
2014
Current assets: £170000
Investment property: £70000
Amounts falling due: £40000
Net assets: £210000
Why would a company like this suddenly owe £300k in debt? I don’t understand how his outgoings could ever be that high unless he was somehow fiddling it to owe himself. And what is the ‘investment property’ in his fixed assets all about? I wonder if he has tied the office in his house to the business, or secretly bought a building somewhere and claimed it as a business property.
I appreciate that this will be guesswork, but any insights for this clueless poster would be appreciated.
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Comments
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Some extra info from his return in 2016. He states there is a £250k loan or overdraft, but declares a £350k dividend that is paid to himself. Why do it that way?0
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Surely if the employed people are sub contractors 'pay rises' don't come into it? Sub contractors are freelance and therefore able to take up or turn down the work based on renumeration.0
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Oh yes. He was entitled to offer us whatever he liked. The problem was he had an effective monopoly on the work we were doing, and was dishonest about the money available to do it. His company was only ever supposed to be a solution to employing freelancers at the public body, but clearly he saw the ££££ signs.0
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Simple answer is that he's doing other things through the company that you don't know about and is none of your business. Pointless trying to second guess things that you'll never know about.
Concentrate on what you do know for fact, i.e. if he's wrongly putting work through his own company to make a personal profit which you know is against his contract of employment with the public sector body, you can report him to his employer. Otherwise, you've no facts/evidence and he's probably not doing anything wrong with his other activities.0 -
Fair enough point. Would have loved some speculation though!
Edited to add: at least two of the charitable bodies who funded him were shocked to find out how little his contractors were being paid, and have subsequently employed them directly. Yes, I will forward the accounts to the public body. As far as I am aware, there is no contract in place (he does not tend to use such things).0 -
The investment property is fairly easy to explain. Most consultancy companies are cash rich.
Cash doesn't have much of a return (in fact in a business account it can be difficult to get any return) so a lot of people invest in btl through their limited company. Most due it via a second company though as it can be difficult to get a btl mortgage for your company if it isn't their main focus.0 -
Yup. He has done well out of that!
I think I have figured out the loan/dividend thing. The tax rules changed at that time, and I strongly suspect he added a debt to the company in order to drain funds before the tax increase came into effect. Nothing dodgy about that and probably advice from his accountants.0 -
Oooooooh. How interesting!0
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Actually, if the debt was added purely to pay a dividend then it is dodgy. A dividend can only be paid out from current or retained profits:
gov.uk/running-a-limited-company/taking-money-out-of-a-limited-company
Yes, but he may have retained profits, but just spent them on buying a property - that doesn't remove the retained profits, but removes the cash. Then, if he wants to pay the dividend, he needs to borrow in order to have the cash for the dividend. All very simple and legal.0 -
I have a question about company accounts, and I wondered if anyone with knowledge of debt loading would be able to answer.
Background: A group of former contractors who have supplied work for this company (let’s call it Bob Ltd) have been comparing notes and discovered that the director was taking a 50% cut of all payments toward work done solely by his freelance contractors. This cut *could* be described as a finder’s fee or branding and is not illegal, but it is dishonourable given the director’s frequent claims of a lack of available funds for pay rises etc.
The director of Bob Ltd is known to be something of a shady character. He does not always pay invoices, squirms out of paying expenses and will do anything to keep money flowing through Bob Ltd rather than through another body (a public sector body that also employs him) that could pay these contractors on time. Bob’s director and his contractors sometimes share an office at this public body. The contractors bill Bob Ltd, and Bob Ltd bills the public body. Sometimes charitable bodies use Bob Ltd to pay the contractors.
We know that Bob Ltd is a company with very low overheads. At most, it will have one dedicated room at the director’s house, filled with equipment that will be worth a few thousand (under £10k). It will require a broadband connection, heating and light, but nothing else. Bob Ltd will employ two/three contractors annually, and pay them a maximum of £20k. Travel expenses for the contractors and director would not exceed £10k annually.
Why, therefore, might Bob Ltd’s accounts look like this?
2017
Current assets: £180000
Investment property: £160000
Amounts falling due within 1 yr: £110000
Net assets: £220000
2016
Current assets: £280000
Investment property: £70000
Amounts falling due: £300000
Net assets: £50000
2015
Current assets: £300000
Investment property: £70000
Amounts falling due: £60000
Net assets: £310000
2014
Current assets: £170000
Investment property: £70000
Amounts falling due: £40000
Net assets: £210000
Why would a company like this suddenly owe £300k in debt? I don’t understand how his outgoings could ever be that high unless he was somehow fiddling it to owe himself. And what is the ‘investment property’ in his fixed assets all about? I wonder if he has tied the office in his house to the business, or secretly bought a building somewhere and claimed it as a business property.
I appreciate that this will be guesswork, but any insights for this clueless poster would be appreciated.
2017
Current assets: £180000
Investment property: £160000
Amounts falling due within 1 yr: £110000
Net assets: £220000
where does that show he is £300k in debt
it shows is has debt payments of £11k dues to be paid in the year , loan payments I would guess
It shows he has nett assetts of £220,000. i.e the value of what he owns
You cannot tell anything from those' accounts 'as they arent accounts
And tbh mean nothing
A company can be paid payers because they are struggling , or because they are just paid payers ....Its judgement call on whether you do any more work for themVuja De - the feeling you'll be here later0
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