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Recoup carried loss as directors loan payment?

How can I take carried loss out of the business without incurring tax or NIC liability?

Hi there,

I have a small limited company, now in the third year of operation. The business made a loss (setup costs) in the first year, a tiny profit in the second year and expects to make more profit in the current year. The setup costs were paid from my personal bank account. I've filed the first year tax return with the loss carried forward. I understand that this loss will be used to offset future profit. However, my question is how can I recoup the loss from my business? Can I transfer the value to my bank account and call it Director's loan payment? For example,

1st year loss (setup costs): £5500, 2nd year profit: £500, 3rd year expected gross profit: £6000;

This gives potential 3rd year net profit: £6000 - £5500 + £500 = £1000. If I pay corporation tax of £200, I'll have £5800 cash left in the company account. However, £5000 of this cash is carried forward loss. Is it okay to withdraw this money? If yes, will this go into Director's Loan Account (debit)?

Thanks for your help.

 

 

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22nd Oct 2017 21:57

I take it you debited these costs to the appropriate account as they were incurred.

To what account did you post the corresponding credits?

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to lionofludesch
22nd Oct 2017 23:10

Yes, I debited them to the appropriate accounts. I lumped the corresponding credit into 'Creditors: amounts falling due within one year' in the abbreviated account.

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22nd Oct 2017 22:01

If your accounts have been prepared correctly there will already be a loan to the company from you included in creditors, equal to the amount of company expenditure paid out of your personal bank account. Is there such a balance included in the company’s last balance sheet?

If so, and your question is whether you can withdraw any surplus cash the company has as a repayment of your loan, the answer is of course yes.

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to johngroganjga
22nd Oct 2017 22:32

Thanks John. Yes, it is included as Creditors: amounts falling due within one year.

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to Hillpoint
22nd Oct 2017 23:40

I am not sure why you even need to ask whether your company is allowed to repay what its accounts say it owes you, but yes of course it is. What sort of world would it be if we could not repay our debts for fear of being arrested and thrown in prison?

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to johngroganjga
23rd Oct 2017 00:01

Thanks John. I asked because I wasn't sure how it all fits in within the balance sheet. Now I understand the Director's Loan Account should be debited.

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By Ruddles
22nd Oct 2017 22:40

Did your setup costs include accountant's fees? If not, why not?

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to Ruddles
22nd Oct 2017 23:11

When I originally set up the company, I didn't know I have to involve accountants in company formation. I thought I'd just hire one for final accounts and tax returns.

Things didn't go as planned in my first year, I incurred so much expense and ran out of cash. So, couldn't get an accountant and decided to do the first return myself. I'm still 8 months away from the end of the 3rd trading year, which I project to be profitable. I can afford an accountant if it all works out for me.

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23rd Oct 2017 02:08

I am assuming that as you don't have an accountant you have neglected to pay a salary or make other suitable adjustments to allow future CT deductions? Given your expectation of future profits not budgeting for an accountant could be quite a costly "saving". Of course, if you're not serious about making money from a business then it probably makes no sense to have an accountant to plan for its success, but in that case why bother setting up a company at all - running as a sole trader is surely simpler and cheaper.

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23rd Oct 2017 09:18

Problem is Tim, first port of call for someone setting up a business without an accountant is normally - ok lets go set up a limited company.

Which obviously may or may not be the correct decision.

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