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Should directors wage always go through the DLA?

Even if a director takes his wage in that payroll month, should it be recorded in and out of the DLA

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Should the directors loan account exist as a register of all transactions between a director and the company? 

I was originally taught to log all wages through the DLA, and all cash withdrawals, such that at the end if the year, a balancing dividend would be recorded. 

 

For example

The wage of £833 is recorded and taxed through PAYE. The director takes £2000 in cash. 

£833 credit, £2000 debit to the DLA. The business is profitable enough to cover it comfortably.

Is there a benefit or problem with this method? 

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22nd May 2018 05:54

VictoriaLondon42 wrote:

I was originally taught to log all wages through the DLA, and all cash withdrawals, such that at the end if the year, a balancing dividend would be recorded. 

On the job training? May I ask what prompted the question now?

VictoriaLondon42 wrote:

Is there a benefit or problem with this method? 

It's* not very transferable is it? What happens when the director doesn't have a 100% shareholding? Or indeed has no shares?

*I mean the dividend bit. Clearly nothing wrong with the dr/cr approach.

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22nd May 2018 07:47

Wrong question.

Your question should be “if the wage of £833 is recorded and taxed through PAYE and the director takes £2000 in cash, do they leave themselves open to potentially significant tax charges & penalties (as well as false RTI submisssions) after HMRC successfully argue that the £2k is wages net of tax & NI?”

Yes.

Get them the set up a standing order for the £833 on pay day, then pay dividends of changing round-sum amounts on a different day £1200, £1100, £1250 etc

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22nd May 2018 08:48

The example you give is a poor one.

I have several directors who take exactly the salary they declare through RTI. I see no point in pushing this in and out of the DLA.

Where the director withdraws a different and completely random amount, the most practical way would be to use the DLA.

However, I would always counsel against taking random sums of money at will.

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22nd May 2018 09:01

If they're taking a salary, then you're going to be either posting to DLA or wages control anyway.

Even if the salary is below the tax & ni limits, I'd still credit DLA then debit when the Salary is withdrawn. For me, it keeps things tidy and creates an audit trail.

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22nd May 2018 10:08

Cash withdrawals . . . balancing dividend . . .
I'm beginning to develop a twitch.

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By tom123
23rd May 2018 10:01

Any companies I have worked at, the directors pay themselves, along with all the staff, on pay day in the usual fashion. Yes, P&L is Directors salaries rather than staff.

But then, I have never had directors who dip their hands in the till randomly either.

I guess I have tended to work at larger places than the usual Aweb clientbase, however.

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By DJKL
to tom123
23rd May 2018 12:14

Yes, an in house accountant has the job of trying to stop them; mine are now house trained.

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