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How to enter unit sales for member withdrawals
To manage the sale of units for member withdrawals, you can do so using the UNIT VALUATION SYSTEM within the CLUB section as illustrated in the following screen shot:
This help section discusses how to manage member withdrawals, through the sale of units, using the 'sell units' button. The 'sell units' button on the 'UVS' tab, provides a simple wizard that enables you to quickly manage unit sale transactions.
One of the very powerful advantages that timetotrade offers, is the ability to see the state of your accounts at any point in time, simply by adjusting the 'end date'. This functionality also extends to the Unit Valuation System, as you have the ability to change the 'end date' and view the historical unit value for the selected date.
Please note that when working with Unit Valuations on the 'uvs' tab, it is important to remember that the selected 'end date' determines the displayed unit value as well as the unit value used when selling units using the 'sell units' wizard. It is therefore very important that the 'end date' is chosen correctly.
In the following step-by-step example, we are going to consider a scenario that requires the sale of units to facilitate the withdrawal of money by a club member. Let us assume that on the 3rd April 2010, "Charles Convergence" decides to leave his investment club and sell all of his units. The club agree to Charles selling his units using the unit value on the 3rd April 2010, however as the club has to sell some shares to raise the money to pay Charles, to cover the trading commissions associated with selling the shares the club decide to charge Charles a £25 withdrawal penalty.
To enter Lucy's unit sale into timetotrade, please complete the following steps:
Step 1: Set the 'end date' to the date used to value the units
Whenever you work with unit transactions, it is important that you firstly set the 'end date' to the date the unit transactions occurred; in doing so the correct unit value will be displayed when entering the unit sale information. In this example we are going to set the 'end date' to the 3rd April 2010 (3 Apr 10) as displayed in the screen shot below.
To change the 'end date', click on the date field and either use the drop down calender to select a date, or manually enter a date using the displayed format. When you are finished, click on the 'set' button.
Step 2: Click on the 'sell units' button
To sell units, one option is to click on the 'sell units' button that is positioned at the bottom of the Club Members section, as displayed in the screen shot below:
Alternatively you can use the 'add/edit' button to sell units as discussed in the "How to add individual unit transactions" help section.
Step 3: Enter the unit sale details
After clicking on the 'unit sale' button the member withdrawal wizard should appear. In the first field on the top row, enter the date when the club member was paid from the club's bank or broker account. After entering the date, select the club member's name from the drop down menu. You now have the option to either enter the number of units that you wish to sell or to enter a fixed cash amount that the club member wishes to withdraw. Lastly, you have the option of applying a Withdrawal Penalty by either entering a fix amount of cash or a percentage figure.
In this example Charles Convergence wishes to withdraw all his funds from the club account. He is paid out on the 3rd April. As he is withdrawaing all of his funds from the club, this is input as a sale of his entire unit holding of 2,971.46391 units. The units have a value of £1.04674566550 per unit on the 3rd April (the unit value figure is automatically calculated by the software based on the asset value and total club units as at the end-date; you can manually over-write this figure if so required). In this example we will also include a penalty charge of £25 on withdrawal, to cover the cost of trading commissions for instance.
This information is entered into the wizard as displayed in the following screen shot:
When you have finished entering all of the necessary information, click on the "sell units" button.
You will see that Charles now owns nil units and the number of units in the club has reduced from 58,347.53 to 55,376.07, reflecting the sale of Charles' 2,971.46391 units. Charles has been paid a total of £3,085.37 (ie his £3,110.37 fund value less the £25.00 withdrawal penalty). The total asset value in the club has reduced by £3,085.37 accordingly, from £61,075.03 to £57,989.66.
Additional Information
If you enter a unit sale with a Withdrawal Penalty, two line items will appear in 'unit transactions' history: a 'unit sale' and a 'withdrawal penalty' as displayed in the following screen shot:
When you view the 'income/expenditure' section of the ledger associated with unit sale, you will see two entries as displayed in the following screen shot:
The unit sale will be recorded in the 'Expenditure' section as this represents a negative cash flow, and the withdrawal penalty will be recorded in the 'Income' section as this represents an positive cash flow. The unit sale reflects the total value of the units sold, excluding any penalties, and the withdrawal penalty represents the value of the money that must be withheld when paying the club member. Therefore to calculate how much money should be paid out to the club member, subtract the 'withdrawal penalty' from the 'unit sale' amount. In this case Charles Convergence would be paid £3,085.37 i.e. £3,110.37 - £25.00
Member Leaving
After you have sold all of a club member's units and they have left the club, you should:
1) Amend the Member History
2) Amend the members' Roles and Privileges
DO NOT remove the club member from the club. HMRC require that history of the ex-club members' accounts and unit transactions are retained.
When a member leaves a club, a withdrawal report should be generated to ensure that the appropriate level of taxation has been paid by the club member who is leaving. The ability to generate withdrawal reports using timetotrade has been scheduled for development at the start of 2011. For more information on this topic, please reference the following HMRC website: What happens when a club member leaves
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