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Reimbursement of directors's expenses (Start-up)

How to treat the reimbursement of directors's expenses at a start-up?

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I work for a start-up that doesn't yet generate any revenue and currently finances its operations through funds received by various shareholders of the company. 

Director 1 = is now a minority shareholder but when the company first started held no shares in it, just the director title on Companies House (not sure if that makes a difference at all?). Since the company started, Direcor 1 has been invoicing a monthly fee (via his own limited company) plus expenses (if there were any for that particular month). We always paid his invoice like we did for all the other advisors / contractors.

Direcor 2 = majority shareholder who used to be the sole shareholder of the company & now still owns the majority for the company. Has been working for free but now wants to start reclaiming business expenses (not historic, recent expenses). 

TWO questions:

1. Have we incorrectly treated the fees & expenses of Direcor 1 - should we have applied for 'employer' status and paid Director 1 a salary? OR should we have applied for an 'exemption'? OR have we treated his invoices correctly as Director 1 has its own Limited Company where these invoices originated from?

2. How do we treat the expenses of Director 2? Do we just add them to an expense form & then pay him? Do they need to be added to a DLA until we pay them out? Do we then need to treat both directors in the same way? 


Thank you so much for your time in reading this and helping me work this out. 

Replies (7)

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By Accountant A
21st May 2019 18:42

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By andy.partridge
21st May 2019 18:55

You need a consultation. Have you got an hour to spare? Me too, but not for free, I'm afraid.

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By Waves
21st May 2019 19:06

An accountant can probably help, Daniela!

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Replying to Waves:
By andy.partridge
21st May 2019 19:13

I've told you before to stop calling me Daniela in public.

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By Tim Vane
21st May 2019 23:25

Oh dear. Did you try to cut costs by not consulting an accountant. What an expensive way to save money!

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By Matrix
22nd May 2019 06:08

As a new start up if you haven’t already you need to engage an accountant to advise, this will ensure that you put best practices in place, save tax where possible and remain compliant.

1. Probably should have been salary unless his company provides the same professional advice to a number of clients. Take advice on the bespoke facts.

2. If they are business expenses then they can be repaid but ensure the company pays them directly and any invoices are in the company name for VAT purposes going forward and to make the bookkeeping easier.

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By tonycourt
22nd May 2019 09:47

There are several tax issues to address here which affect, or might affect, the company's PAYE compliance obligations, its future corporation tax liability, the directors' personal tax liabilities.

If you want an outline explanation I'm happy to provide one if you PM me, otherwise contact an accountant.

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