DLA - am I an idiot?!

Emrhino

Hi all,

At a risk of sounding like a right plank - can I just check re Director's Loan Accounts please?

When I have a new Ltd Company where the director/s are taking cash at irregular intervals, I usually ask them to pay themselves a small regular salary (usual PAYE/NIC limits) which I record through my payroll software and record the rest of the payments against Director's Loan Account until the end of the year when Divis are decided.

Fliking through my Tolley's bible I read that PAYE/NI becomes payable on any payments as soon as they are credited to the DLA, do other members put these amounts through as payroll and then somehow adjust the figures at year end?

Having a mini-meltdown and think I'm confusing myself flicking between chapters!

I always thought it was OK to leave the amounts on the DLA and just contra them with the divi payment as long as the DLA balance outstanding wasn't over £5K but now I'm not so sure!

Any advice greatly appreciated!

Monsoon

You need to keep an eye on the DLA throughout the year.

"drawings" are debits.
Monthly salary, dividends, and expense claims are credits.

Interim dividends may need declaring to ensure the balance on the DLA never goes more than £5k overdrawn at any time.

Interim divs can only be declared if there is enough profit after tax.

It is not enough to declare a dividend as part of the year end procedure only.

Emrhino

Thanks, Monsoon.

It sounds like you would treat the drawings as I would - I suppose 'drawings' aren't really remuneration which WOULD be liable to PAYE and NICs.

I know you're not supposed to declare a divi too regularly throughout the year (OK, annually is a bit extreme!) - do you ever do it more often than quarterly? I always think it looks a bit obvious to HMRC...

Emrhino

Just read my original thread - you did well to make sense of it! I really am having a midweek-meltdown, sorry!

Monsoon

Emrhino wrote: »

Thanks, Monsoon.

It sounds like you would treat the drawings as I would - I suppose 'drawings' aren't really remuneration which WOULD be liable to PAYE and NICs.

"Drawings" are a director's loan. Literally, money loaned from the company to the director. Either he has to pay it back, or it has to be cleared by way of salary, dividend or expense claim.

I know you're not supposed to declare a divi too regularly throughout the year (OK, annually is a bit extreme!) - do you ever do it more often than quarterly? I always think it looks a bit obvious to HMRC...

This is a myth. You can declare a divi as often as you like as long as it's done properly (company has the reserves, director/shareholder decides to pay it. Preferably documented).

My clients get dividends when necessary. I tend to be DLA balance and personal tax liability driven. E.g. I will clear the DLA with a div when looks close to going overdrawn, but will let the DLA get overdrawn towards the end of the tax year (not not over £5k) if it's going to save on higher rate personal tax, and then declare a dividend in the following tax year.

deanshepherd

As an alternative to drawing a loan and clearing it with a dividend. Declare every withdrawal as a dividend and if you have taken excess dividends come year end, repay them back to the company. You don't need full management accounts to decide whether you have sufficient profits to pay a dividend. A 'back of the fag packet calculation' will do.

Emrhino

Just realised I didn't reply to your comments Dean - thank you, they were really really helpful.

Emma