Directors Loans – what are they?

June 24 2014, 0 Comments

One of the first questions we get asked from new customers is how to account for personal money spent on either setting up the business or loans that they have made to the business.

For limited companies these expenses can be handle by a director’s loan account.

A traditional view of a director’s loan is when you take money from your company that isn’t a salary, dividend or expense repayment and you’ve taken more than you put in. And you have to be very careful that the loan does not exceed £5,000 at any time during the year otherwise it will become a benefit in kind and will have to then be entered onto the directors P11D. Though if a director pays the market rate of interest this may not be the case.

If you are not borrowing money from the company but in fact loaning the business money using this account is the simplest way of keeping track of money that the company owes you.

The first rule is that you should always keep receipts for business expenses that your have paid for personally and are then going to reclaim. These can be entered into Business Accountz either via the easy steps or directly into purchase transactions. The “From” account for this transaction is Directors Loan Account (you can setup separate accounts if you have more than one director). Please note, in your companies’ books it does not matter how you paid for these expenses if you paid cash or from your personal bank account or personal credit card it will still be from Directors Loan. The “To” account will relate to what type of expense this relates to stationery, travel, stock etc.

If you have paid personal money into the business bank account this should be entered as a Transfer transaction From Directors Loan account To Bank Account.

You can view the balance of this account by clicking onto the chart of accounts and here you will see a running balance of all amounts loaned to the company.

At any point (as long as you have funds in your business bank account) you can repay yourself this would be entered as a Transfer” From” Bank Account “To” Directors Loan Account.

To see just how easy this can be, you can take a free 14 day trial of the software and we can help you all the way!

trial button
buy now button