Terms & Conditions

[Anonymous]

I know this one has came up before but I would like some advice..

We have a customer who has taken drawings from his Capital account. These drawings have been deducted from the total of last years and this years profits.

I know the guidance manual advises that they should be ignored if they have not been deducted from the Gross Profit, however we have added them back in as income and this has now been challenged.

Is it right to say that because the drawings have came from money coming into the business e.g. (net profit) it is right to add them back in as income?

Any legal standing to back this up as anything I have looked at is a bit vague?

Thanks in advance

[Anonymous]

Generally speaking, if a person takes money out of a business, they are to be treated as taking it for their personal use, so it will be (earned) income, in the same way as if they had not it would be part of the profits at the end of the year (and treated as income).
The only way for this not to be so would be if your claimant could show that the money was used for legitimate expenses, and thus would be disregarded. 8)
I would look at it in another way – reg 38 (I think) tells you what to class a legitimate expenses. This is not on that list, so is therefore included. 😉

[Anonymous]

Thanks Jon

Can anyone clarify that if the business is financed by the capital account which includes drawings should be taken into account as income or again is it based upon what the drawings are used for?

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