Reply to: Salary and Directors loan account

[northernladuk]

Ouch!

It's true though.

[SlipTheJab]

Blimey, begs all kinds of questions as to why you are using your LTD if you are working 16 hours a week on low income? That must a rate worse than Psycho's....

Talking about Psychocandy. He is our resident benefits expert and all round dole scrounger. He knows a lot about how to play the system and the like so he might be the one to help here.

Ouch!

[northernladuk]

. If you don't then as NLUK would say "What does your friend's Accountant say?"

LOL nice... but if the OP's 'friend' is on low wage and only 14 hours a week I'd imagine they don't have one so I refrained in this instance. Way to go me

[Scruff]

Mmmm - wasn't sure whether to enter this thread or not, but here we go....

The following are the General Ledger Journal Entries that describe the actual transactions (please bear in mind that in your Ledger, payments into the bank account are DEBITS and payments out of the bank account are CREDITS)

The money is not credited to your friend's Director's Loan account. It is credited to the Sales Account.

Receipt of payment for Sales, cash accounting method

Debit to Bank Account
Credit to Sales Account

The Salary paid is done using RTI

Debit to Salaries Account
Credit to Bank Account

Any money over and above Salary

Debit to Director's Loan Account
Credit to Bank Account

Dividends Declared (not paid)

Debit to Dividends Paid
Credit to Shareholder for Dividend Account *

Dividends Paid out

Debit to Shareholder for Dividend Account *
Credit to Bank Account

* - If the Director and Shareholder are and the same, the Shareholder for Dividend Account can be substituted by the Director's Loan Account

Now, if you understand that, then your initial question has been answered using Double Entry Accounting. If you don't then as NLUK would say "What does your friend's Accountant say?"

[VectraMan]

2. Loan your company £40 out of your own personal funds, which will go on the DL account. Pay yourself £160 and issue a payslip accordingly.

This.

The Director's Loan is nothing to do with the pay slip or P60. You could do what NAT said, or simply pay yourself £120 but issue the pay slip for £160. The latter isn't as bad as it sounds as you have been paid £160, it's just that £40 is in the form of an IOU from the company.

[jungleboogy]

Blimey, begs all kinds of questions as to why you are using your LTD if you are working 16 hours a week on low income? That must a rate worse than Psycho's....

Talking about Psychocandy. He is our resident benefits expert and all round dole scrounger. He knows a lot about how to play the system and the like so he might be the one to help here.

Thanks, it's not that she's playing the system, in this case the system would be playing her ! It's not a typical contractor rate as it's more akin to a charity, low pay and no surplus of funds within the business, so cashflow within the business is extemely tight.

[NotAllThere]

Think you’re almost there. ...

Don't patronise me, sonny. It's you who needs to be almost there, not me.

[jungleboogy]

And that is exactly why you won't get an sensible answer.

If she's earning less than 30k a year she would be better off with a brolly rather than a LTD company no?

That's why I didn't want to give you the background, I'd like answers to be based on it being a 'limited company' as that's my understanding at the moment.

[jungleboogy]

Let's see if I can figure this out.

On weeks you work more than 16 hours you want tax credit. But the funds aren't in the company to pay your 16 hours. So you pay yourself 12 and the rest is in the director's loan account, which you'll pay off when the funds come in?.

However, if you work only 12 hours, you won't be claiming a tax credit. Because that would be fraud.

I.e. you get £10 an hour. At the end of the week in which you've work 16 hours, you want £160. But an invoice is late being paid, so you only take £120, and the DL account owes you £40. Your payslip that you issue yourself shows that you've only be paid 12 hours because you pay yourself £10 an hour and it's only for £120.

Two possible ways of dealing with this.

1. Pay yourself £5 per hour with a bonus consisting of how much your company can afford. As director you shouldn't have to worry about minimum wage.
2. Loan your company £40 out of your own personal funds, which will go on the DL account. Pay yourself £160 and issue a payslip accordingly.

Think you’re almost there. The number of hrs worked is always 16hrs per week or more. However, as the business doesn’t have sufficient funds at the time the salaries are due to be paid they only pay out the equivalent of 12hrs per week. However, I guess they’re contracted to pay out an annual salary that equates to 16hrs per week. Hence, some payments come from the directors loan at periodic intervals to make it up. That’s the nature of these types of social enterprise type businesses. The issue I’m concerned about is proving she DOES work 16hrs if asked for payslips. Assuming the P60 includes the directors loan monies then I guess it’s not an issue. If it doesn’t then the accounts will need to be submitted as well. The only other thing she’ll have is her timesheets that will show 16+

[NotAllThere]

Let's see if I can figure this out.

On weeks you work more than 16 hours you want tax credit. But the funds aren't in the company to pay your 16 hours. So you pay yourself 12 and the rest is in the director's loan account, which you'll pay off when the funds come in?.

However, if you work only 12 hours, you won't be claiming a tax credit. Because that would be fraud.

I.e. you get £10 an hour. At the end of the week in which you've work 16 hours, you want £160. But an invoice is late being paid, so you only take £120, and the DL account owes you £40. Your payslip that you issue yourself shows that you've only be paid 12 hours because you pay yourself £10 an hour and it's only for £120.

Two possible ways of dealing with this.

1. Pay yourself £5 per hour with a bonus consisting of how much your company can afford. As director you shouldn't have to worry about minimum wage.
2. Loan your company £40 out of your own personal funds, which will go on the DL account. Pay yourself £160 and issue a payslip accordingly.

[northernladuk]

I'm actually asking on behalf a friend but just easier to use me as the example. It's a public service industry she works in part-time. I believe it is a limited company but is a social enterprise so may work slighlty differently. We'll assume it is a limited for my questioning. so yeah it's not well paid. I guess it's a similar principle to the low salary / dividend principle that most contractors follow. However, in this case it's just the timing of the invoicing by the company to generate the funds to pay the salaries that's out of sync so salary due is delayed and taken from directors loan account later.

And that is exactly why you won't get an sensible answer.

If she's earning less than 30k a year she would be better off with a brolly rather than a LTD company no?

[TheFaQQer]

I'm actually asking on behalf a friend but just easier to use me as the example. It's a public service industry she works in part-time. I believe it is a limited company but is a social enterprise so may work slighlty differently. We'll assume it is a limited for my questioning. so yeah it's not well paid. I guess it's a similar principle to the low salary / dividend principle that most contractors follow. However, in this case it's just the timing of the invoicing by the company to generate the funds to pay the salaries that's out of sync so salary due is delayed and taken from directors loan account later.

In the same way that a director puts down the salary and dividends they receive on the form, the employee puts down the salary that they earn, not when they take it.

So your friend would declare her salary that matches the salary on her P60, whether she has received the money or not (as NAT says, she has received the money and then lent it to the company) plus any other income she has received (interest, dividends, etc).

If the company cannot afford to pay salary, I would worry about the viability of working for them.

[seanraaron]

I'm actually asking on behalf a friend but just easier to use me as the example. It's a public service industry she works in part-time. I believe it is a limited company but is a social enterprise so may work slighlty differently. We'll assume it is a limited for my questioning. so yeah it's not well paid. I guess it's a similar principle to the low salary / dividend principle that most contractors follow. However, in this case it's just the timing of the invoicing by the company to generate the funds to pay the salaries that's out of sync so salary due is delayed and taken from directors loan account later.

Well hopefully that will clear things up for other people who likely read your initial post and thought you were "at it."

[northernladuk]

Blimey, begs all kinds of questions as to why you are using your LTD if you are working 16 hours a week on low income? That must a rate worse than Psycho's....

Talking about Psychocandy. He is our resident benefits expert and all round dole scrounger. He knows a lot about how to play the system and the like so he might be the one to help here.

[jungleboogy]

I'm confused, are you getting a crap contract rate currently?

I'm actually asking on behalf a friend but just easier to use me as the example. It's a public service industry she works in part-time. I believe it is a limited company but is a social enterprise so may work slighlty differently. We'll assume it is a limited for my questioning. so yeah it's not well paid. I guess it's a similar principle to the low salary / dividend principle that most contractors follow. However, in this case it's just the timing of the invoicing by the company to generate the funds to pay the salaries that's out of sync so salary due is delayed and taken from directors loan account later.