Equalising directors current accounts - why?

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I have tried to use the search engines to find why it is done, but could not find a good explanation.

Could someone please explain why accountants equalise Directors Current Accounts/ Directors Loan Accounts? 

I assume that in the simplest case the accounts of directors "mirror" specific transactions from the Business Bank Account, reflecting the money movement between the company and the individual (dividends, salary, expenses, etc.).

But why would an accountant or their customer want to equalise the amounts in the accounts of two directors? 

Replies (15)

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RLI
By lionofludesch
16th Oct 2020 11:36

I've never done this so I couldn't say.

I have, however, assumed that a joint husband-and-wife account is owned equally, which I think is an entirely reasonable assumption to make.

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By johngroganjga
16th Oct 2020 11:38

tonysimpson wrote:

Could someone please explain why accountants equalise Directors Current Accounts/ Directors Loan Accounts?  

If you think that doing this is the norm, it certainly isn’t. It may be done from time to time as an exception, and that will be where the directors themselves want it to be done. It’s not a matter of accounting policy. The only logical reason I can think of for doing it is where two directors live together, and the debits to their accounts principally comprise joint expenses.

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Psycho
By Wilson Philips
16th Oct 2020 11:51

Because the directors have requested it?

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By Paul Crowley
16th Oct 2020 12:01

Never done it
BUT husband and wife sometimes joint
Joint not two separate identical

Is this just what your accountant does, but nobody else does?

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Replying to Paul Crowley:
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By tonysimpson
16th Oct 2020 13:04

It is a husband/wife situation, yes. I can't say for any other accountants, as I'm struggling to get my head around this concept!

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Replying to tonysimpson:
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By Paul Crowley
16th Oct 2020 13:30

I had a married couple keeping separate.
Changed their mind when husband went £30K overdrawn and I calculated the s455 tax payable.

Most of the separate ones I deal with have wife making the choice

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Replying to Paul Crowley:
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By tonysimpson
16th Oct 2020 16:20

If you get a moment to spare, could you please explain what you mean by "overdrawn"?

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Replying to tonysimpson:
RLI
By lionofludesch
16th Oct 2020 16:32

tonysimpson wrote:

If you get a moment to spare, could you please explain what you mean by "overdrawn"?

Director owes the company money instead of the other way round.

Similar to an overdrawn bank account where the customer owes the bank money instead of the other way round.

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Replying to Paul Crowley:
Flag of the Soviet Union
By thevaliant
18th Oct 2020 09:37

Got one client. Elderly father, two adult children.
FAther runs the business. Kids have no involvement.

DLAs regularly all over the show. On at least one occassion, father has said 'Daughter loans to Son' to avoid S455.

Neither daughter nor son have any clue this happens.

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Replying to thevaliant:
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By tonysimpson
18th Oct 2020 10:03

Thank you for sharing this colourful example.

How does that avoid S455? Wouldn't the regulation come into play in any case if the account is overdrawn at the end of the year? And if it isn't - would it be outside the scope of S455?

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Replying to tonysimpson:
Flag of the Soviet Union
By thevaliant
18th Oct 2020 10:37

I suppose it doesn't (or at least it might not), but this gentlemen is a very very important client of ours.

If he wants something doing, then its done. So of course, if at the year end set of accounts (December) then the final meeting might be April. At December, Son was a debtor of £50k. Daughter a £100k creditor.

Dad just says, "Daughter loans to son." and we book CR Son DLA £50k and DR Daughter DLA £50k, at December year end. We have a Deloreon DMC12 you see.

((Put simply, it's the usual example of firms bending the rules to do what important client wants))

One year, daughter was overdrawn, and son not. This year he tried, "But family overall is NOT in a debit position." (ie, in the round we're in credit). To our credit, the partner replied with, "That's not possible. Does Son want to loan to daughter?" ((ie, Dad wanted us to just ignore the S455 tax completely and NOT adjust the loan accounts))

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Replying to thevaliant:
Psycho
By Wilson Philips
18th Oct 2020 10:47

That’s not bending the rules - it’s breaking them.

But, other than to avoid disclosure, there’s no need to backdate the offset - why not do it correctly and book it at current date, ie before the 9-month deadline?

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By Paul Crowley
16th Oct 2020 12:04

WHY?
it might be done to hide an overdrawn directors account, with need to pay tax and disclose on companies house.

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By tonysimpson
16th Oct 2020 13:05

Thank you for all the responses! Your explanations make a lot of sense!

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By John R
16th Oct 2020 17:05

What do you actually mean by "Equalising"? I have often advised client companies that equal shareholders should equalise the directors' current accounts except where interest is charged. Otherwise there is unfairness. So the one with the higher amount (assuming credit balances) would withdraw a sum to bring his balance down to that of the other. The same with partners' capital accounts.

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