I have a client with a really profitable business. I have just taken over his books. He has been trading as a Sole Proprietor for two years. Unfortunately through lack of knowledge and not the right guidance he has made the typical new business owner mistake of processing and paying just about everything through his business including personal expenses that are not allowable or deductible by even the remotest stretch of the imagination.
Here is the current situation:
- really profitable company
- high output VAT
- low input VAT (as a result of at least 50% of his cost of sales being VAT exempt)
- high shareholders loan account (non business expenses)
Sitting with a VAT liability and a poor cash flow - see the above, but great business potential. He has paid up his VAT by borrowing money (Luckily from his wife) so the VAT liability is current (thankfully), and has regular high profit business coming in monthly that is guaranteed. In addition he will be taxed on the profit of the business in his personal capacity through his provisional tax so will have that debt to SARS as well.
I have visions of the Receiver rubbing his hands gleefully. (and rightly so)
I want to advise this client on the best legal way to get himself out of the hole he is digging, (obviously after a stern conversation about personal expenses and living the high life) and have some ideas, but would like to hear from you all with more experience in this type of thing.