I am completing the financial statements for one of my Ltd company clients. In doing so, I have noted that the directors/owners have purchased a number of items on behalf of the business, e.g. a van, computer, software, etc, and paid for a number of bills, particularly in the early days when there was little money coming in. At the year end, there are still amounts owing, and I wanted to confirm the correct treatment/disclosures required for such items. Is this simply an other creditor? Do I also need to include disclosures for RPTs, given these are transactions with directors?
Also, is there any particular treatment for tax purposes?
Thanks in advance for any advice given,
Jan
Replies (3)
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Amounts owed to directors are just included in Other Creditors, but, as you say, must be included in the Related Party Transactions note, stating the nature and amount of the transactions and the year-end balance. This does not go in the abbreviated accounts, if you do those for Companies House - only debit balances go in there. I don't think there are any tax issues, unless maybe some VAT issues if the invoices were made out to the director personally, but I'm no tax expert.
No tax issue
HMRC should accept that the VAT is reclaimable on legitimate business expenses incurred by the employee even though the invoice is not in the company name.
As the company is building up a debt to the director this is quite good news for tax purposes in that:
Payments to the director could be loan repayments (tax free) rather than taxed remuneration.Director could charge the company interest on the balance owed to him, which can be quite tax efficient as no NIC but still CT deductible - but carries a requirement to withhold basic rate tax, and a CT61 requirement to disclose, for the company.