Reply to: Director's Loan Account - what goes on it?

[zonkkk]

Thanks, Darren.

They use their own online system which I update myself with all the information and I like to keep things clean and tidy. So I just found it strange.

I was told that if I pay each expense separately as they are recorded they won't show up in the DLA. I believe they have some kind of automation in place.

[Darren at Fox-Bartfield]

Directors Loan

Agree with @lance, it's a bit lazy if using Freeagent in particular as should go directly against the expenses.

Normally, when preparing the year end accounts, an accountant should let you know what's gone through or the balance of the directors loan account. Freeagent makes this process much simpler as CP states as it keeps the expenses, salaries, dividends, etc in separate accounts therefore makes it much more simple to identify.

When using manual methods, the DLA tended to be an account that was used for all of the above plus any underpaid expenses that were put through at the year end.

[Lance]

Can any of the accountants here say if this is standard procedure or not?

If you pay out of the company one amount to cover two expense claims, this would go on the DLA?

It used to be.
10 years ago, when I was running a small company, the accountants used the DLA accounts for all Directors incomings and outgoings. It just kept it easier.
It's still a plausible method, as long as it get's paid off, but in the days of Freeagent it's lazy. As others have pointed out, FA keeps it own separate journals for expenses, salary, loans etc. so lumping it all in one DLA is pointless now.

One exception is where a mistake is made (overpaying dividends or expenses for example) a DLA can be used to clean it up without breaking the law.

[zonkkk]

Can any of the accountants here say if this is standard procedure or not?

If you pay out of the company one amount to cover two expense claims, this would go on the DLA?

[TheCyclingProgrammer]

It sounds backwards to me. FreeAgent has separate expense accounts to be directors loan account which makes more sense to me.

You register £x amount of expenses in an expense claim and this goes into the employee expense account.

When you withdraw the money it reduces the balance in the expense account.

No reason I can see to mix this up with the loan account. I would only put expenses in there if I’d purchased something on behalf of the company (ie in the company name) to show that I’ve effectively loaned that money to the company, which is not the same as making an expense claim for out of pocket expenses.

[zonkkk]

I have heard back from my accountant.

Apparently, if I as a director register two separate claims:
- £500 for mileage;
- £50 for subsistence expenses;
and I then withdraw £550 on the same day from the company's bank account and reconcile the two expenses with the 1 withdrawal, this will show up in my directors loan as £550 but repaid.

The reason being, they are separate expenses but only one withdrawal.

This just sounds backwards but they say it is standard practice. Is this correct?

[Waldorf]

My accountant puts my 'use of home' allowance in the DLA when doing the accounts each year, which acts as a useful prompt for me to extract the money from my Ltd Co.

Don’t think he should do that as an automatic action, could be deemed as being involved in your company and all the MSC issues that throws up.

[aoxomoxoa]

My accountant puts my 'use of home' allowance in the DLA when doing the accounts each year, which acts as a useful prompt for me to extract the money from my Ltd Co.

[BrilloPad]

Director's Loan Account - what goes in it?

You know when you take a car apart and put it back together you have several nuts and bolts left over that are supposed to rattle round the fuel tgabk?

Director's loan account is the fuel tank....

[zonkkk]

This is the one area of accounts that many contractors fail to grasp and many accountants take advantage of this by ‘hiding’ unknown items. If there is one question you need to ask about your accounts, it is a full breakdown of the directors loan account and then ensure you understand what this means.

That's a good idea, I will ask for the full breakdown, as I have tried to work out how they came to that figure, but it's not mileage or expenses or the two added up, etc...

[zonkkk]

Good point. I remember when mine was -ve. I thought it was +ve. Hence I paid money back into the company. Which I paid out as dividends. And was then accused of trading while insolvent.....

It's 0. The amount shows up as paid in full... but to my understanding nothing should show up on it paid or unpaid.

[Waldorf]

This is the one area of accounts that many contractors fail to grasp and many accountants take advantage of this by ‘hiding’ unknown items. If there is one question you need to ask about your accounts, it is a full breakdown of the directors loan account and then ensure you understand what this means.

[BrilloPad]

Is it positive or negative ?

Good point. I remember when mine was -ve. I thought it was +ve. Hence I paid money back into the company. Which I paid out as dividends. And was then accused of trading while insolvent.....

[MB2]

Is it positive or negative ?

If it is positive it is for expenses you have personally paid for but not yet recovered ie the company owes you money. Maybe your mileage claim if you can't think of anything obvious as most receipts you would remember paying on personal card ?

[ladymuck]

Depends on how your accounts are run, definitely ask your accountant.

I do my own acounts and I chuck everything relating to me (i.e. not expenses directly paid for by the company) into the DLA. Salary, expenses, withdrawals, and then settle it up at the end of the financial year.