One of my clients had a run in with the FSA recently - thankfully now all resolved.
Imagine the situation:
You are a provincial IFA doing an excellent job for your clients and have never had a complaint in 5 years trading. Your clients love you and provide a steady stream of referrals.
Having been nagged by me about minimum capital in the business you set aside funds on deposit.
You keep on top of your cashflow and have regular management accounts. A very well run business.
Your year end is 31st December and you make £15,000 profit. Your capital requirement is only £10,000*
On the GABRIEL return for the year ending 31st December you state that your Capital within the Firm is £15,050 including fixed assets and cash etc.
Your Accountant then has eight months to finalise your books and submit them to Companies House and HMRC. During the period between 31st December and when the accounts are finalised you make a further £20000 in profits. Your Accountant suggests that you draw a dividend of £15,000 and charge it to the last year. After all, the interim profits for the current year mean that you still have over £15,000 in the bank.
Wrong. By taking the Dividend from the previous tax year this resulted in the capital position of the Company as at 31 December being only £50. Who ever said that cash was King?
A simple error and easily rectified - the Accountant was able in this instance to provide sufficient comfort to the FSA that the Firm had sufficient resources - better safe than sorry and avoid grief from the FSA and a large bill from your Accountant.
* dates and numbers have been changed to protect client confidentiality.
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