How to handle expenses?

[tails007]

Hi, can anyone help me out on how to handle expenses with a ltd company, in particular reimbursing yourself?

EG. If I pay myself from my company accountant 4k/month (mixture of salary + dividends) but I also buy myself a laptop (from my personal account) (lets say 1k), should I therefore transfer myself 5k (salary+dividends + laptop reimbursement) from my company account?

Sorry for what is probably a daft question!

Thanks!

[TykeMerc]

It's pretty scary that you've set up a MyCo Ltd without even a shred of thought about how you run a business.

I won't bother to discuss the 4k/month Salary/dividend regular payment..... Look it up on CUK, you will find how good an idea that is.

Expenses are of course reimbursed from the company accounts.
A typical approach is to make a record (I use a monthly Excel file) of expenses in the company records, scan the invoice for the expense (or keep the paper) and enter the expense payment into the company accounts. It's really not at all complex, in fact it's totally basic.

[malvolio]

Hi, can anyone help me out on how to handle expenses with a ltd company, in particular reimbursing yourself?

EG. If I pay myself from my company accountant 4k/month (mixture of salary + dividends) but I also buy myself a laptop (from my personal account) (lets say 1k), should I therefore transfer myself 5k (salary+dividends + laptop reimbursement) from my company account?

Sorry for what is probably a daft question!

Thanks!

Daft and naïve, IMHO, and easily answerable form the guides. However...

1. Don't combine salary and dividends. Treat them as separate payments, even if they are paid regularly and you have available post-profit funds to cover the dividend element.

2. Ditto expenses - another separate payment, plus salary, dividend and expenses are three entirely different things with different tax treatments. May sound like a faff, but it keeps clear audit trails.

3. YourCo should buy it's own equipment. Get a company debit card and use it for all purely business-related purchases.

4. To get money back, raise an expense claim (only need be a soft-copy in Excel, just for the record) for the whole amount and pay yourself the money from the company account.

5. You and YourCo are two different persons legally. It helps to remember that when working out how money flows from one to the other.

6, I trust you are also keeping proper minutes for your dividend payments. If you aren't they should be treated as salary and so become liable to NICs

Perhaps time to read the guides again...?

[tails007]

Thanks for the help and advice, not so much of a thanks for the thinly veiled insult though. Perhaps you could offer some advice in that matter regarding the regular payments rather than just looking down your nose at me. People do come on forums after all for advice, if everyone knew everything there would be no need. So please, grant me the benefit of your infinite wisdom.

It's pretty scary that you've set up a MyCo Ltd without even a shred of thought about how you run a business.

I won't bother to discuss the 4k/month Salary/dividend regular payment..... Look it up on CUK, you will find how good an idea that is.

Expenses are of course reimbursed from the company accounts.
A typical approach is to make a record (I use a monthly Excel file) of expenses in the company records, scan the invoice for the expense (or keep the paper) and enter the expense payment into the company accounts. It's really not at all complex, in fact it's totally basic.

[tails007]

Thanks very much. Regarding item 1 below, this is how I was told to do things by my accountant. He said he would just sort things out at his end. Is that not correct, or best practice then? If I were to split this out IE pay myself salary + dividend weekly in two separate transactions would that be ok? Does it make a difference if the transaction amounts are the same amount (near enough anyway).

Thanks again.

Daft and naïve, IMHO, and easily answerable form the guides. However...

1. Don't combine salary and dividends. Treat them as separate payments, even if they are paid regularly and you have available post-profit funds to cover the dividend element.

2. Ditto expenses - another separate payment, plus salary, dividend and expenses are three entirely different things with different tax treatments. May sound like a faff, but it keeps clear audit trails.

3. YourCo should buy it's own equipment. Get a company debit card and use it for all purely business-related purchases.

4. To get money back, raise an expense claim (only need be a soft-copy in Excel, just for the record) for the whole amount and pay yourself the money from the company account.

5. You and YourCo are two different persons legally. It helps to remember that when working out how money flows from one to the other.

6, I trust you are also keeping proper minutes for your dividend payments. If you aren't they should be treated as salary and so become liable to NICs

Perhaps time to read the guides again...?

[malvolio]

Thanks very much. Regarding item 1 below, this is how I was told to do things by my accountant. He said he would just sort things out at his end. Is that not correct, or best practice then? If I were to split this out IE pay myself salary + dividend weekly in two separate transactions would that be ok? Does it make a difference if the transaction amounts are the same amount (near enough anyway).

Thanks again.

Get a new accountant. Seriously. Your guy is at least ten years out of date.

While it is by no means illegal - in effect you are using the director's loan account - doing it his way is lazy and makes it virtually impossible to prove you are operating as a business if you get investigated.

Salary can be the same every month no problem at all; you know what your annual salary will be and can pay off the PAYE and NICs due as needed predictably. You are doing that I assume...?

Dividends are paid out of net profits. You don't know what they are until year end, so blindly paying them out as a regular fixed amount is irresponsible (for one thing you may be out of job next week) and HMRC will treat them as salary if they notice, meaning an additional tax bill and interest as a minimum.

This is your business, not your accountant's. You tell him what to do, not the other way round, and you are legally responsible as a director for keeping everything in order. Relying on him to "sort it" at year end is not meeting that obligation.

However I suggest you have a word with the likes of SJD and Nixon Williams and get their opinion...

[TheCyclingProgrammer]

Company expenses - should be bought directly from company account where possible, otherwise reimbursed to you, but you should get invoices in company name, especially where assets are involved and if you want to be able to reclaim VAT where applicable.

Out of pocket personal expenses incurred in the course of doing your job, e.g. travel, subsistence, accommodation etc. - should be filed as an expense claim using some kind of record (expense claim forms, online system etc.) and reimbursed to you. Most of these expenses will need to be reported on your P11d but not all (e.g. mileage payments at prescribed amounts are exempt).

Things you buy on your company's behalf (where its clear that this is the case) don't normally need to be reported on your P11d but special rules may apply to certain expenses.

Its important to understand the difference between personal expenses (expenses that *you* incur and require you to get tax relief on your personal tax return) and company expenses (which can include the reimbursement of your personal expenses, your salary as well as things the company buys directly like furniture, equipment etc.).

[TheCyclingProgrammer]

Thanks very much. Regarding item 1 below, this is how I was told to do things by my accountant. He said he would just sort things out at his end. Is that not correct, or best practice then? If I were to split this out IE pay myself salary + dividend weekly in two separate transactions would that be ok? Does it make a difference if the transaction amounts are the same amount (near enough anyway).

The problem is, a dividend can only be paid if there is sufficient retained profits to do so. You can only know this if you have up-to-date management accounts at the time you pay the dividend.

Some accountants do appear to have a habit of doing it this way (other people on here have reported their accountant does this) but I agree with mal - its messy and prone to error. Pay your salary monthly with payslips, pay your dividends on whatever schedule works for you as and when profit is available and draw up the paperwork at the time they are paid (even if you just credit the dividend to your director's loan account).

A more foolproof way of doing things would be to just credit your salary and dividends to your director's loan account which you can then draw from at any time but you would still need to ensure each dividend is processed correctly.

[TheCyclingProgrammer]

Dividends are paid out of net profits. You don't know what they are until year end

I know what my running net profit for the year is at any given point as well as my reserved profits. Anybody who keeps good books using an online system should too. You only need to have sufficient profit at the point the dividend is declared, even if you subsequently go on to make a net loss for the year.

[malvolio]

I know what my running net profit for the year is at any given point as well as my reserved profits. Anybody who keeps good books using an online system should too. You only need to have sufficient profit at the point the dividend is declared, even if you subsequently go on to make a net loss for the year.

Yes, I know mine too, and how much retained profit is there from previous years and what my rolling tax liability is. I'll give good odds the OP doesn't, nor will he until he starts keeping proper records...

However the point is that if the dividend/salary/CT/Taxation split is only worked out at year end, he won't have a scoobie if he has sufficient in hand to pay the declared dividend. It's not so much about the money isn't there, it's that he can't demonstrate that it is.