Money from director for paying Corporation Tax

kikaro1995

Hi guys!

Maybe it is a stupid question but I hope someone will answer! I am practicing in sage (just for myself to understand everything better) and am just wondering...

1. Company is not trading in current tax year so there is no money in bank, but the corporation tax needs to be paid. The director pays his money into the company’s bank account to cover CT payment.

How to record this transaction? What are the correct entries?
Is it capital invested or loan from the director to the company? If this is a loan, how to repay it if company is not planning to trading anymore? Can someone explain this please?

Thank you!

douglasstroud

You need to take a step back and ask why the Co can not pay the CT bill, what happened to the profits?

kikaro1995

There is no profit as company wasn’t trading.
I think Profit for previous year was calculated and paid as dividends (profit was calculated after deductions of Corporation Tax am I right?)

douglasstroud

Yes, exactly which means the CT should still be in the Company you can not pay the money owed out as dividends

kikaro1995

Ahhhh! I understand now! Now it makes sense!

But still...if this happened already. What now? Record this payment from director account to company account as an owner investment or what?

douglasstroud

It means that they can not be dividends that the director/shareholder has taken, they owe the Company this money and should be shown in the DLA as money they borrowed from the Co, when they pay the Company back this should then cancel the overdrawn DLA and the Co can then pay the CT

kikaro1995

Thanks a lot!