Hello,
I have a director who doesn't pay themselves anything but includes the amount up to the threshold before paying national insurance contributions in the accounts so that the company can get tax relief. Because there isn't really any monetary value leaving the accounts I have debited the P&L and credited the Creditors, Directors account.
What I would like to know is..... should I let the remuneration accumulate in the directors account or write it off somewhere at year end?
Thank you in advance
Vicki
Replies (13)
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Wrong
Well at the moment the director owes the company money because it's a credit on the balance sheet. I just wonder how that directors account will look in five years time as the remuneration accumulates. Is this OK to allow it to do this? I don't think there's anywhere you can write it off to.
That means the company owes the director money.
Other people have seen that but I will just try to make it as clear as possible.
?????
Do you really understand what you are doing?
If the director has an overdrawn loan account the remuneration is surely reducing that loan.
However you say that he has a credit in the balance sheet. Do you mean the balance sheet item is a debtor balance?
STOP!
It is worrying that you have clients and don't understand the concept of debits and credits on a DLA.
The best thing you can do is stop charging unsuspecting clients who are placing their trust in you and hand them over to someone who knows what they are doing.
In the meantime, you can get some experience and a qualification. Until then, you should not be holding yourself out as an accountant.
Eh?
I don't understand. If the company has declared dividends and these are undrawn by the director, this should be a credit on the DLA. Equally, undrawn remuneration should also be a credit. How can you offset one against the other?I will make the necessary adjustments and off set the remuneration against the dividends which will leave me with an empty loan account.
I'd also assumed Vicki was in industry and thought the above comments about her having clients were harsh - however I've just seen her post here: https://www.accountingweb.co.uk/anyanswers/accounting-late-filing-penalt...
It is worrying to say the least that Vicki is apparently AAT qualified, acting for clients, but doesn't appear to know her debits from her credits and is blissfully unaware of what is happening with this DLA..............
Vicki,
To be fair, this is very basic stuff. Someone holding themselves out to be an accountant should not need to be reminded of basic double entry.
Please don't leave the site. It is a helpful resource and your clients need us!
All the best,
Cheeky
Upset?
Sorry if you are upset Vicki, and in honesty I was going to defend you from the earlier comments as I assumed you were still in industry and making internal postings. However, I would not expect someone who is self employed, advising clients, to think that a credit on the balance sheet equates to a director owing his company money! This isn't a 'normal question that pops up' in my opinion.
Hopefully you have your director running a payroll for his salary, and make suitable accounting entries in the company's records to reflect the salary - in which case he can merrily build up a healthy DLA to draw down as and when he chooses. I assume he has no other income and the company is making profits - as otherwise you may be incurring personal tax without (certainly in the short term) saving corporate tax. It does raise the question as to what he is living on though and I mention it mainly because I've taken over clients where the previous accountant has made this mistake, because 'everyone' gets the £8k salary treatment.........
The concern over people preparing Ltd Company accounts whilst asking what might seem a 'slightly silly question' is that whilst this isn't the crime of the century, I immediately jump to the conclusion that if you don't know the basics, how the hell are you going to get all the complicated stuff right?
Unfortunately, those of us who have always been in practice probably suffered at one point in our career under a miserable, pedantic, vicious partner who would have been a lot more scathing than I have. As a result, we are unlikely to mix up our debits and credits in the way you did. I will admit to a belief that industry isn't a great training ground for practice and i feel you might have benefitted from some training in practice before going alone.
As for my purpose here - its not to belittle anyone. It's to seek (and provide) advice, exchange ideas with fellow professionals etc. A quick look through my posts will, I hope, support that.
It just goes to show that no matter how qualified somebody is, sometimes they just don't get it.