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Overdrawn Director's Loan

HollysanHollysan Feels At HomeRegistered Posts: 68
I have been working on a (very) small startup with one Director. His first year's accounts are showing an overdrawn Director's Loan/Current account. This is because he paid for some equipment, legal advice and travel expenses which I think do not meet the Wholly and Exclusively rules, so I have posted them to his DLA. He genuinely thought he could put them through his company, but has accepted that is not the case. He had not put much money into the company at the beginning, it wasn't necessary, so now he has an overdrawn DLA but less than £5k.

Other relevant facts are that he is not paying himself a salary from this co; there is no PAYE scheme, and there were no interim dividends declared, although there is a profit.

We are still within 9 months and a day of the year end, so no implications re. s455 (tax due for the company on a beneficial loan) or having to declare the loan on his P11d (no PAYE scheme anyway) as long as he 'repays' the loan quickly.

I have been mulling about this, and think if I get him to declare a dividend in the next few days, based on the information I can already provide (draft accounts) and he notes this for the records, it could be credited to his DLA to reverse the current position. My question is, would the 'loans' still need to be declared on the company tax return? I have looked at the guidance at CT61605 and EIM26260 and I think I would because the declaration will be post-year end and will not affect the balance sheet at year end - his o/D DLA will still appear as a debtor.

Any thoughts would be welcome....

Thanks,
Hollysan

Comments

  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    Yes, declaring a dividend now (subject to current balance on DLA, not year end balance) will be fine.

    You enter the loan o/s on CT600A and enter amount repaid on CT600A, so cancelling each other out no tax charge.

    O/d DLA to be declared in notes to the accounts.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    Monsoon wrote: »
    O/d DLA to be declared in notes to the accounts.

    I think I'm right in saying that the note should be in both the full and abbreviated accounts.
  • BluewednesdayBluewednesday Font Of All Knowledge Registered Posts: 1,624
    reader wrote: »
    I think I'm right in saying that the note should be in both the full and abbreviated accounts.

    It should but the name doesn't have to appear (according to the course I went on last week) as the name only appears in the related parties note which drops out of the abbreviated accounts. You can file the abbreviated with 'a director had a loan ....' apparently but I'm sure Steve will jump on me if I'm wrong!!
  • HollysanHollysan Feels At Home Registered Posts: 68
    Thank you, Jenni, reader and Blue Wednesday for your replies. Jenni do you mean that if the overdraft on the DLA has increased since the end of the AP the dividend should be enough to return it to a debit balance? i.e I need to prepare some management accounts?

    All clear on the CT600A, as regards the notes, thanks for the suggestions. Any particular wording?

    Thanks again for your suggestions.

    Hollysan
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    Hollysan wrote: »
    Thank you, Jenni, reader and Blue Wednesday for your replies. Jenni do you mean that if the overdraft on the DLA has increased since the end of the AP the dividend should be enough to return it to a debit balance? i.e I need to prepare some management accounts?

    All clear on the CT600A, as regards the notes, thanks for the suggestions. Any particular wording?

    Thanks again for your suggestions.

    Hollysan

    "consider a company that simply makes a £50,000 advance to the director for the purpose of a house purchase. In this case, the related party disclosure could be as simple as:

    During the period, the company made a short-term loan to Mr Director amounting to £50,000 for the purposes of a house purchase. Interest at the rate of 7.5% per annum is payable half yearly and the loan is repayable on 31 December 20XX."

    http://www.accountingweb.co.uk/topic/practice/directors-loan-accounts-disclosure-issues/471014

    "There is no longer a requirement to disclose the maximum overdrawn amount nor is there a requirement to disclose transactions in which a director has a material interest"

    http://www.icaew.com/en/members/practice-resources/news/disclosure-of-directors-loan-accounts-a-pragmatic-approach

    "The details required of an advance or credit are—

    (a)its amount,

    (b)an indication of the interest rate,

    (c)its main conditions, and

    (d)any amounts repaid."

    http://www.legislation.gov.uk/ukpga/2006/46/section/413
  • HollysanHollysan Feels At Home Registered Posts: 68
    Thank you Reader,

    I have read through the links, very helpful. As the payments made were < £5000 I will simply make a note that £X payments were made on the Director's behalf, interest-free and repayable on demand. The full amount was repaid on X date. Do you think that is enough? Date is of course after the year end but before the 9 months and a day are past.

    Sorry it took me so long to reply - revising for ATT exam!

    Thanks,

    Hollysan
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    Hollysan wrote: »
    Thank you Reader,

    I have read through the links, very helpful. As the payments made were < £5000 I will simply make a note that £X payments were made on the Director's behalf, interest-free and repayable on demand. The full amount was repaid on X date. Do you think that is enough? Date is of course after the year end but before the 9 months and a day are past.

    Sorry it took me so long to reply - revising for ATT exam!

    Thanks,

    Hollysan

    Looks OK to me; you've got all the main points in nice and sufficiently like Steve Colling's example.

    Good luck with your att exam- I have att's personal tax and cgt exam on the 6th.
  • HollysanHollysan Feels At Home Registered Posts: 68
    Good luck to you as well. I'm doing Corporate Tax - and finding it very hard going!

    Thanks for your help.

    Hollysan
  • HollysanHollysan Feels At Home Registered Posts: 68
    Good luck to you as well. I'm doing Corporate Tax - and finding it very hard going!

    Thanks for your help.

    Hollysan
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