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How do you show monies transferred within a Challenger bank into pots without affecting the balance sheet?

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Challenger banks are challenging my accountancy skills, from a legal perspective:
 
There’s a potential issue with the way money is being treated at year-end where a client is using one (or more) of the challenger banks like CountingUp, Monzo and Mettle and the way they allow monies to be set aside into pots for various purposes.
 
For example, a client uses CountingUp and Monzo and he uses Monzo to set aside money for tax and car deposits into to separate “pots” which are INSIDE the bank account but show as having been “sent” from the current account, even though they haven’t actually left the bank account.
 
This presents a problem in that if it doesn’t show in the bank balance, it has to be shown SOMEWHERE and as the challenger banks don’t have deposit accounts as such, it would normally be treated as drawings, and that would mean the DLA would be hit and tax would be payable by the director when, in fact, he hadn’t actually taken the money out of the business and had simply set it aside into VIRTUAL accounts. The link below shows a discussion thread that is about the issue, specifically for Monzo.

 
My gut instinct would be to create nominals that would be virtual deposit bank accounts that would be for each of the pots used (in the above client’s case, Car Deposit and Tax) – that way the money is shown to remain as part of the business and so not a liability on the DLA. They might have to be non-reconcilable accounts at the moment as the challenger banks don’t provide statements for each of the pots – they’re included as part of the main account statement as transfers in/out, but the reconciled balance for the current account shows that the money has "left" the bank.
 
I've, therefore, pro tem, set up two "deposit" accounts in the software so that the balance sheet is accurately reflected and the client is not impacted.
 
Surely I'm not the first to have encountered this issue?


Edited at 04 Dec 2020 01:16 PM GMT

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  • # 119339

Bazward said:

Challenger banks are challenging my accountancy skills, from a legal perspective:
 
There’s a potential issue with the way money is being treated at year-end where a client is using one (or more) of the challenger banks like CountingUp, Monzo and Mettle and the way they allow monies to be set aside into pots for various purposes.
 
For example, a client uses CountingUp and Monzo and he uses Monzo to set aside money for tax and car deposits into to separate “pots” which are INSIDE the bank account but show as having been “sent” from the current account, even though they haven’t actually left the bank account.
 
This presents a problem in that if it doesn’t show in the bank balance, it has to be shown SOMEWHERE and as the challenger banks don’t have deposit accounts as such, it would normally be treated as drawings, and that would mean the DLA would be hit and tax would be payable by the director when, in fact, he hadn’t actually taken the money out of the business and had simply set it aside into VIRTUAL accounts. The link below shows a discussion thread that is about the issue, specifically for Monzo.

 
My gut instinct would be to create nominals that would be virtual deposit bank accounts that would be for each of the pots used (in the above client’s case, Car Deposit and Tax) – that way the money is shown to remain as part of the business and so not a liability on the DLA. They might have to be non-reconcilable accounts at the moment as the challenger banks don’t provide statements for each of the pots – they’re included as part of the main account statement as transfers in/out, but the reconciled balance for the current account shows that the money has "left" the bank.
 
I've, therefore, pro tem, set up two "deposit" accounts in the software so that the balance sheet is accurately reflected and the client is not impacted.
 
Surely I'm not the first to have encountered this issue?


Edited at 04 Dec 2020 01:16 PM GMT

 I ask all clients to switch of the pots. If we are doing the bookkeeping, they don't need pots as we can report to them, what the Tax liability provision should be. Alternative, if they are insistant on having this on the bank, just open a deposit account with same bank and then do real transfers.

These "pots" are really for people who don't use a professional (ICB) bookkeeper.

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  • # 119342

Good idea, Vip, if they listen.



However, challenger banks don’t have deposit accounts at the moment – that’s why they have the pots facility. I suppose they could try opening another current account with a different challenger bank as long as it doesn’t charge at all for transactions, but those are few and far between (Mettle is one…)

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