Hello,
I have looked for a correct answer on this question for weeks without a satisfactory one which refers to this situation is particular:
Ltd company with sole director was formed in May this year, prior to starting contract work in design.
However, having come from permanent employment, both the business bank account and funds were not in place at startup. Therefore, the first 3 months invoices have been paid directly into directors personal bank account.
As I see it, this would be a debit to the directors loan account (director owing company), slowly being offset over time by expenses payments (which the director pays for personally). Bad practice, but that's the situation. The business account is now setup, expenses recorded and future invoices paid into this account.
But what confuses me is the company for those first 3-months would have been making clear profit, minus expenses and tax. Therefore the director would have been due remuneration in dividends (PAYE not yet setup due to HMRC not sending documents after several attempts). However, I know it is illegal for dividends to be paid retrospectively.
- In this situation, the director has taken, say, £9999 of company income from invoices for his services, but will repay £9999 in 12 months. If his accounts were setup properly prior, he would have taken £8000 as a dividend, set aside 20% for tax and repaid nothing. Can a proportion of that £9999 repaid on the DLA be redistributed to the Director at a later date, should it still be in profit?
As such, which of these statements are true/false?:
- -Director allows expenses to accumulate over the year and thus offsetting most of the Director Loan. True?
- -At the end of financial year, ALL profit is taken into account, including the first 3 months the company (which has now been credited mostly back) and the remainder is offset with a bonus payment. Only in following financial year?
- -Salary can be paid retrospectively for work completed, as the first 3 months invoices were through the company, just not into business account. So, although not PAYE, the salary can be paid to offset some of Director Loan and relevant personal taxes paid once it is set up. False
Replies (5)
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This is a very basic and extremely common scenario. Appoint an accountant and they will not only be able to answer your questions but also show you how to make the most efficient use of your time and money.
You are chronically overthinking. You have correctly described the right way to deal with the company transactions passed through the shareholder's own bank account.
The rest of your questions are about the company paying salaries or dividends to the shareholder. Yes of course it can pay whatever it wants whenever it wants, although not of course in the past unless you have a time machine.
Up to you but surely much simpler for the company to pay its own expenses out of its own bank account, now that it has one. If the shareholder has cash to meet those expenses let him just pay it to the company to reduce his loan. Same result achieved much more simply and transparently.