Non-overdrawn directors accounts

Non-overdrawn directors accounts

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Need a little advice on directors accounts. I know if a directors account is overdrawn it can have tax implications if it's not paid back in the set timescale after year end, however, what about non-overdrawn accounts? My clients directors account balance has reduced a fair bit (from £12k to £5k) since the start of the financial year in January, however, it is now consistently sitting around £5k, does it have to be at zero at year end? Or can this be carried forward as long as it doesn't increase too much?

Also, my client tends to have some business expenditure going out of personal account (ie expenses) and sometimes personal expenses going out of the business account, these all go via the directors account to account for the relevant side of the transaction, but do I need to be having the conversation with her that we need to keep things as separate as possible (it's not loads of transactions), or is it ok as long as I keep the directors account in order.

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By Sheepy306
07th Sep 2013 22:48

It's fine
Stop stressing. Directors loan account in credit is great news for them and is no problem at all. Personal expenses debited to DLA.....that's fine too, as are credits. No need to have conversations with client about this at all. Are you working within a firm? Studying?

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By mm01
08th Sep 2013 10:19

Studying...
I sincerely hope!

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By vickym1984
08th Sep 2013 19:10

Still studying. No need for the sarcy comment though. I am a qualified book-keeper (starting tax studies for next year) and all you said, is what I thought, hence not bothering with worrying about it for the last year I have done her books, however the lady who is taking over the books whilst I am on maternity leave is AAT (so therefore slightly higher than be study wise)  and she was saying that it had to be zero'd at year end etc, which is what got me concerned. However seems II was right all along!

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By johngroganjga
08th Sep 2013 20:47

It is a little surprising to say the least that an AAT qualified person apparently thinks that companies are under an obligation to repay all loans from directors by the end of the accounting year in which they are made, than which nothing could be farther from the truth.

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By vickym1984
08th Sep 2013 21:25

I know, I have seen her qualification, membership etc. Am rather concerned now. Feel relieved that I had the right idea all along, but wil be re-talking to my client about this person fiing the year end accounts (it was previously an accountancy firm, and I said to get a smaller firm/sole  practioner to do it, and when this lady came on board to take on the actual book keeping whilst I am on leave the client thought about going with her)

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By cfield
11th Sep 2013 12:39

No problems

As others have said, no problem with year end credit balances on directors loan accounts. No need for them to be disclosed in abbreviated accounts either (although overdrawn ones should be under both FRS 8 and the FRSSE).

An auditor once told me that directors loans attract the attention of HMRC whether in debit or credit and are thus best avoided at the year end, which might be where your lady is coming from, but I've seen no evidence of that for credit balances. Personally, I'd have thought it looks more odd if there isn't a balance on the DLA at the year end.

It is generally better not to use company funds for personal transactions as a matter of policy, but OK to debit them to DLA if there are. The trouble is some of them may not be identified as personal until later which may cause problems, especially if they cause the DLA to be overdrawn.

Re business expenses paid personally, OK to credit DLA immediately if the transaction was on behalf of the company, such as accountancy fees, but if they were personal expenses like travel and sub, technically they should not be credited to DLA until the director has signed an expense claim for them.

Good luck with your maternity leave by the way. And don't worry about the sarky comments. I'm afraid they are an occupational hazard on AWeb, and they usually come from people who aren't actually that knowledgeable themselves. The better advisors tend to be much more polite!

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By Barkster
11th Sep 2013 13:33

Overdrawn Directors Loan Account

I have just been looking at a set of accounts prepared by "respectable" London firm of Chartered Accountants (you can take that to mean "expensive") and I noticed they had left an overdrawn DLA balance of £6,517 at the year end of 31 Dec 2011 (with no instructions to the client to repay before 9 months was up), no CT600A supplement (although they had charged interest to the accounts of £27 !), and there were sufficient reserves to have paid a dividend and cleared the o/d balance anyway, and the client only had the basic salary on his personal tax return with no other income or dividends to preclude them paying him a dividend. (I am aware a dividend should not be backdated so perhaps there are some timing issues here).

But with a £27,000 turnover and a £9,300 profit, these knowledgeable accountants managed to charge nearly £4,000 in fees, so you would have thought some pertinent in-year advice might have been forthcoming, especially as everything was on Quickbooks so the o/d balance would have been easy to spot before the year end.

 

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Replying to _Andy_:
By cfield
11th Sep 2013 14:33

Big fees poor service

Barkster wrote:

But with a £27,000 turnover and a £9,300 profit, these knowledgeable accountants managed to charge nearly £4,000 in fees, so you would have thought some pertinent in-year advice might have been forthcoming, especially as everything was on Quickbooks so the o/d balance would have been easy to spot before the year end.

Doesn't sound like they were very pro-active then. I think some of these bigger firms rely on their swanky offices, glossy brochures and sharp suits to persuade clients to part with huge fees for a sub-standard service. You get the impression they don't want to dirty their hands on a bit of routine tax planning for the smaller clients. It's almost as though it's beneath them.

Always go by reputation and recommendation. The smaller firms will put themselves out for you a lot more as they value your custom. It's a bit like getting your car serviced. A local mechanic with his own garage will often do a better job for a lower fee than the main dealers.

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By Gone Sailing
11th Sep 2013 14:09

DLA's

When a Director supports the cash flow of a company by either lending some money or not drawing declared dividend (director/shareholder) or payrolled salary, then good for them, how does that crop up on HMRC radar?

The transactions described are very typical.

The biggest problem I have with DLA's is getting the client to understand them.

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By pauljenkinsandco
11th Sep 2013 14:53

worrying!

At the risk of upsetting the OP, it worries me that so many people use the services of part-qualified (Studying) or under-qualifed (AAT) to prepare their company accounts.

Full marks to the OP for knowing what is correct, and checking it out when put into doubt as to whether it is correct. No criticism of him.

And is it fair to expect an AAT to be knowledgable about the legal aspects of Company Accounts?

OK.... here comes the storm of protest about qualified accountants who are rubbish - and there are plenty of them.

But when you go to see an Doctor or a Solicitor you expect, and do, get a suitable qualified person. 

Now I've got my tin helmet on....

 

 

 

 

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Replying to sukuho:
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By Barkster
13th Sep 2013 08:53

Doctors - don't get me started
I went to see a doctor a few years ago with a possible hernia. After 20 mins of poking prodding coughing etc she declared it wasn't a hernia. 6 months later I saw another doctor who said in about 10 seconds, that's a hernia, and I had the op.

Moral of this story - just because they're highly qualified, with all the right post-nominals, it doesn't necessarily guarantee you the right answer !

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By vickym1984
12th Sep 2013 19:13

I agree Paul. I refuse to take on any work I am not qualified for. So I only do the books and make sure someone else does the company accounts and corporate tax. Do you think tax technicians would have the right knowledge to do Corp tax returns or should I wait till I am CTA? ( starting att next year then onto cta )

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By DavidGilligan
12th Sep 2013 20:37

Just checking

@Barkster  Was that really only £27,000 turnover?? Sounds an odd deal - why would someone with such a tiny turnover go to a firm like that? The World is going mad.

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By Barkster
13th Sep 2013 08:50

Yes absolutely !

I think he had been with them for years and fees had gone up year on year and turnover had dwindled a bit but now he's seen the light !

It was all done on Quickbooks too so not much for them to do really (although I would probably charge extra because it was done on Quickbooks !)

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By DavidGilligan
13th Sep 2013 09:36

Just checking

Well, that's not accountancy - it's racketeering Clearly a firm with no integrity.

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