Made a Mistake with Salary/Dividend Payment

[bathingape]

Hi there, I've searched about on the forum and found similar threads but was hoping for a more conclusive answer here.

Basically, I've ballsed up!! I was doing my end of month accounts, where I usually fill out the SJD Spreadsheet, and pay my monthly salary however as I've just started back contracting again in January, (after being a permie), I was calculating what my quarterly dividend would be.

So I do what I normally do when I go and pay my salary...I fire up the RBS app on my phone and bang in the numbers and pay myself, however for some bizarre reason I had the dividend figure in my head and have managed to pay myself £10k instead of my salary amount. I didn't want to do the dividend yet as I have an appointment with my accountant tomorrow and wanted to ask how much I could take as I was a permie up until December 2014 (Annual salary of £40k).

How can i rectify this? I've read I could declare it as a loan however I'm not comfortable with masking an honest mistake as a legit transaction, plus that could get messy too with regards to BIK etc? I haven't completed any dividend paperwork yet. Can I just pay it straight back to my business account? It was an honest mistake, but I'm prepared to take the hit if I have to

[TheCyclingProgrammer]

Just pay it back. Shown it as a transaction from and to your directors loan account. Assuming it was already nil or in credit, £10k has no BIK implications.

[bathingape]

Thanks. Forgive my lack of knowledge regarding loans but isn't there interest on a directors loan?

[Contreras]

Thanks. Forgive my lack of knowledge regarding loans but isn't there interest on a directors loan?

Not if <= £10k as TCP says.

Really it's the net amount you owe the company, i.e. offset by the as yet unpaid salary, any unpaid expenses, etc. so you are definitely below £10k assuming there wasn't a pre-existing loan.

[bathingape]

Ah ok. Thanks, i shall declare as a loan

[TheCyclingProgrammer]

Ah ok. Thanks, i shall declare as a loan

As Contreras says, once you have declared a dividend it can be used to offset the loan so you would only owe the net amount although if you haven't yet declared one the whole £10k would be treated as the loan.

What you can do is debit the DLA, speak to your accountant to figure out what dividend you can declare, declare it, credit your DLA by the same amount and then re-pay the balance to clear the DLA in full. Its a fairly straightforward bookkeeping exercise so if you're not confident ask your accountant.

In journal terms its:

CR Bank Account £10k
DR Director's Loan Account £10k

And if you decide to declare, e.g a £5k dividend:

DR Retained Profit £5k
CR Dividends Payable £5k

DR Dividends Payable £5k
CR Director's Loan Account £5k

Then you re-pay the remaining £5k (or leave it outstanding on the books but beware of the implications of this):

DR Bank Account £5k
CR Director's Loan Account £5k