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First year ltd company - Directors Loan help?

How do you make sure you're not overdrawn at end of year?

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Hi 

We set our limited company in May this year so are in the first year of trading.  We get paid a small employee wage monthly and then take out other lump sums sporadically to use for day to day living.  As its our first year we're not going to know what our profit will be so I'm confused how we make sure we're not overdrawn at the end of the year in our Directors Loan Account?  The small employee wage is not enough to cover all our personal bills and daily living and its our only income.  I don't understand how we would make up a negative Directors Loan Account if our company is our only source of income?  Any advice for the first year of trading and using our Directors Loan Account would be appreciated.  Thanks

 

Replies (16)

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By Paul Crowley
03rd Dec 2021 11:08

Get a freebie chat with an accountant
Always good to keep simple records that he can deal with quickly rather than try to set up a really clever system that he has never seen before.

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Replying to Paul Crowley:
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By Paul Crowley
04th Dec 2021 03:08

I have said this before
Some accountants are very good at covering several questions in one single free meeting
They can even tell you how to keep simple records that can make the accounts easy to prepare and understand

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By Paul Crowley
03rd Dec 2021 11:10

Loan
Try to take nothing out in the final month, and take out double first month after year end

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By Tax is always taxing
03rd Dec 2021 11:11

You will likely declare a dividend to clear down any overdrawn balance. But your accountant will advise as there are things to consider, albeit not very complicated.

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By yelsnew
03rd Dec 2021 11:20

Get an accountant.
They will explain how this all works and it will benefit you greatly for the entire time you have the company!

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RLI
By lionofludesch
03rd Dec 2021 11:24

On the basis of what you say, you're bound to have a loan to the company at the end of the year. The question is whether you'll be able to declare a dividend to clear it.

Which means knowing your profit and preparing accounts to at least some rudimentary level. Lots of people don't know their profits accurately. You're not alone.

But don't worry - MTD is coming for companies and when it does, you'll know exactly where you stand to the penny.

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Replying to lionofludesch:
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By Paul Crowley
03rd Dec 2021 11:27

Brilliant
Trouble is that MTD ITSA does not really work until dividends from small co are drawn in

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Red Leader
By Red Leader
03rd Dec 2021 12:03

Thanks Lion, I feel very relieved now. MTD sounds great!

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By David Ex
03rd Dec 2021 12:57

ajgriffin100 wrote:

How do you make sure you're not overdrawn at end of year?

 

The trite but correct answer is to maintain proper accounting records and have access to someone who understands them. If you don’t have an accountant, you really should get one soonest.

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By Leywood
03rd Dec 2021 13:45

I do not understand why you have no clue what profit you are making.

But as has been said before you need an Accountant.

Would be good as well if you at least acknowledged the responses you have had from various Accountants for free, on all your posts since you joined this Accountants forum for Accountants.

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By ajgriffin100
03rd Dec 2021 14:06

Hi everyone, thanks for taking the time to reply. I am aware of our profits on a month by month basis but I didn't think it would as simple as taking out your profits each month (after putting aside money for tax) but maybe that might be the best way forward?

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Replying to ajgriffin100:
RLI
By lionofludesch
03rd Dec 2021 14:20

ajgriffin100 wrote:

Hi everyone, thanks for taking the time to reply. I am aware of our profits on a month by month basis but I didn't think it would as simple as taking out your profits each month (after putting aside money for tax) but maybe that might be the best way forward?

Depends.

You may need to retain some money for working capital.

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Replying to lionofludesch:
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By Leywood
03rd Dec 2021 14:44

And have made the usual adjustments.

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By Catherine Newman
03rd Dec 2021 18:19

Why are you trading as a limited company is the starting point?

I am seeing far too many people setting up limited companies without advice and who are clueless about running them.

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Replying to Catherine Newman:
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By Paul Crowley
04th Dec 2021 03:01

Better having a business go wrong inside a company than as self employed
But that assumes a level of organisation
eg getting the wages sorted so that state pension is kept in order
That and accountancy and compliance being more expensive and time consuming

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By adam.arca
03rd Dec 2021 21:03

If you’re reasonably sure that you’re making an ok profit (and granted that can be a big IF) and without wishing to sound blasé and definitely you shouldn’t get blasé and ideally keeping the loan below £10k throughout, then it really shouldn’t be a biggy.

1. Get your accounts done properly as soon as and don’t leave it until the 11th hour
2. Your accountant will then tell you that the loan is £X.
3. If you have sufficient profit, your accountant will then most likely suggest a dividend.
4. You can also then have a conversation about timing issues, interaction with personal tax, finding a better way to handle this etc etc.

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