An area that contractor’s often ask about is Director’s Loans. Based on the questions we get, we’ve put together a comprehensive guide that covers everything you need to know, such as who can take a Director’s Loan, guidelines for taking a loan and tax implications connected to it.
Never be confused by a Director’s Loan again by reading our guide, ‘Everything you need to know about Director’s Loans’.
In this article, we’ve decided to focus on Director’s Loan Accounts.
The basics of a Director’s Loan Account
A Director’s Loan Account is sometimes referred to as a director’s current account or DLA. These terms are used to describe a record of transactions between a limited company and its directors and are noted down in the company’s balance sheet.
Balance sheets are used to show a company’s financial status at a given point in time. The balance sheet details what the company owns (assets) and the amount it owes (liabilities), as well as what has been invested in the company.
The Director’s Loan Account is used to show:
· What monies have been taken out (withdrawn) from the company
· Personal expenses that have been paid for by the company
This information is offset by:
· Net salaries and dividends that are due to the company’s director(s)
· Reimbursements of expenses
If the limited company has more than one director, which it often has, each director will have its own Director’s Loan Account section in the balance sheet.
How transactions look on a Director’s Loan Account
There may be times when you need to loan your limited company money, to buy a new piece of equipment or to launch a new product, for example.
This means the company will owe you money and will be shown as a balanced owed to the director in the Director’s Loan Account.
On the flip side, if you borrowed money from your limited company, this will show as a balance owed to the company by the director on the Director’s Loan Account. Depending on other transactions, the Director’s Loan Account may be classed as being overdrawn.
Keeping your Director’s Loan Account in good shape
As time goes on and money is taken out of the company, it’s easy to lose track of transactions. Good record keeping can prevent this.
If records aren’t kept up to date, payments and withdraws could be misallocated which can lead to the incorrect taxes being paid.
If record-keeping is not one of your strengths, we’d advise you to engage with an experienced accountant who can help you understand if the account is in debt or credit.
A Director’s Loan is a notoriously complex area of legislation, and mistakes can easily be made without you realising it. For further guidance, please refer to our Director’s Loan guide or speak to us on 01962 867550.