Directors Loans

[NotAllThere]

We like to keep track of liabilities. It's called "managing your cashflow". How do you know you've not taken some of the money that should be paid as tax? What will you do when you get a £10,000 tax bill, and you've already spent it on wine, women and song?

[david@purpleaccounts.com]

Like l have said on another thread, your accountant should be in a position to tell you what your 'safe available funds' are each month. I term safe available funds as those funds you can do what you like with after tax liabilities have been accounted for.

When your accountant has calculated your profit, he should be able to inform you of the most tax efficient way of drawing your funds i.e. expenses, low salary, dividends, whilst ensuring you are keeping enough cash in your co bank account to meet year end tax liabilities.

[exbrm]

Keep it simple?

We like to keep track of liabilities. It's called "managing your cashflow". How do you know you've not taken some of the money that should be paid as tax? What will you do when you get a £10,000 tax bill, and you've already spent it on wine, women and song?

Because after years of experience in contracting one knows the approximate % one is likely to draw as net from gross turnover. So set yourself a figure of, say, 75% of your gross turnover and write what is called "a spreadsheet" to keep a running total of your predicted entitlement as each invoice is paid.
As I said, it all gets sorted out at year end.

[Maxamus]

Following on from the above post

.....work out your total incoming monies for a month.

minus salary plus tax/ni
minus expenses

what should be left is profit.

now choose how much of that profit you want as divi. It could be all of it or it could be x%, the choice is yours.

If you decide to take say all of it for arguments sake, then work out the CT on it. For example if your left with £4000 profit after deducting the above and you want to take all of that 4k as divi then you will need to pay £800 in CT. So your divi will be £3200. Easy as pie!
Move the £800 into the business management account (for it to sit and gather interest until you hand it over to gordo) and transfer the £3200 to your current account. Job done.

[Bluebird]

Because after years of experience in contracting one knows the approximate % one is likely to draw as net from gross turnover. So set yourself a figure of, say, 75% of your gross turnover and write what is called "a spreadsheet" to keep a running total of your predicted entitlement as each invoice is paid.
As I said, it all gets sorted out at year end.

you also need to keep all the reciepts you need for the year end as well.

Your strategy is fine, however I prefer to know where I am and I have enough money to pay any bills that come in.

Don't forget you also have toa ccount for VAT and PAYE quarterly, you also need to have documentation to support any dividends you declare.

It just seems to be to easier to do this monthly that all in one go at the end of the year.

[exbrm]

Yes BB - I do all that, I was just trying to keep it simple.
I have a spreadsheet which in old money was called a cash book. This has income and expenditure columns. Income from invoices, expenditure to others including myself. A running total on the income and a calc of 75% of this (excl. VAT) and a running total of expenditure to myself. A calc subtracting one from the other shows the balance "available" to draw on. The remaining 25% should cover PAYE, NI, CT & Accountant and sundries. VAT was not in the equation so that's covered with poss some gain from FRS.

[Bluebird]

Yes BB - I do all that, I was just trying to keep it simple.
I have a spreadsheet which in old money was called a cash book. This has income and expenditure columns. Income from invoices, expenditure to others including myself. A running total on the income and a calc of 75% of this (excl. VAT) and a running total of expenditure to myself. A calc subtracting one from the other shows the balance "available" to draw on. The remaining 25% should cover PAYE, NI, CT & Accountant and sundries. VAT was not in the equation so that's covered with poss some gain from FRS.

That sounds fine - as long as you produce documentation to support the dividends when you need to - ie Meeting Minutes & Dividend Vouchers. Your original reply however implied that you used your business a/c as an extension of your own personal bank a/c.

I guess it's whatever you, your accountant and HMRC are happy with.