Hi,
I’m trying to work out how to add a recurring expense for use of premises. I work mainly from home, and I have an agreement drawn up whereby I licence the premises (part of my home) to my limited company. In our previous accounting system, this recurring expense was tied to my Directors Loan Account - I’m wondering how to achieve this with QuickFile?
Thanks,
James
Whilst we cannot advise on whether this is allowable by HMRC, we can assist with the accounting entries.
Quick File does not support recurring expenses, although you can create a purchase invoice and copy that purchase invoice every month. As the limited company is leasing the premises, ‘Log a Purchase’ for the monthly/annual rent payable (as specified on the lease) and pay the purchase from the ‘Director’s Loan Account’:
Hi Joe,
Thanks for your reply - however, that reduces the amount in the Directors Loan Account. Should that amount not go up, as the company effectively owes me more money? That’s what happened previously.
When a payment is made on behalf of the company by the Director, this is shown as money out on the Directors Loan Account (DLA), a liability to the company. When the company repays the Director, this is tagged as a transfer to the DLA, therefore shown as money in to the Directors Loan Account, which clears the balance (or part of it).
I think I’m missing something, @Joe. In our previous system, the company would pay me (a director, but also in effect a supplier) a portion of the rent and utilities I pay for my home. Each time the company did that, the amount in the DLA would increase, because the company owed me. When I drew money out, that would reduce the balance of the DLA.
You seem to be suggesting that I pay the expense in question, out of the DLA, whereas I thought the company should be paying me as a supplier. Am I misunderstanding?
I see your confusion, setting yourself as a supplier and paying the purchase invoice (paying yourself) directly from the Business Account is fine, as long as it’s clear that you as the Director are also the supplier, as this is not evident to your Accountant from the ledgers. This method is slightly different from using the DLA, which acts a virtual bank account, tracking the transactions between the Director/s and the Limited Company.
The correct method is to show any transactions with the Director through the DLA, regardless if you have an agreement with the Company, therefore you would create yourself as a supplier, create a purchase invoice for the rent, pay the invoice from the DLA and then tag any reimbursement payments from the business as a transfer to your DLA to clear the balance, this provides a clear audit trail.
Nope, I’m still not with you here. The reason we did it before was that it was an allowable expense - each month, the company owed me that amount (a calculated percentage of what I pay personally for rent, light, heating and electricity). The amounts would accrue in the DLA, meaning that I could draw that money from the company without there being any tax implications. I declare the rental income on my personal tax return (for FY12-13 it will be £2007.12pa), but no tax is due, as it’s covered by allowable expenses.
You seem to be saying that the rent should be paid from the DLA (in effect, me paying it), then reimbursed by the business back into the DLA. That’s two transactions - the net effect of which is zero. No money accrues there. As I understand it, it should be a one-way transaction, with the business paying me rent (into the DLA), per the licence agreement I have - which I can then draw at some point.
Are we talking at cross-purposes, or does the above make sense?
It accrues on the DLA up to the point you reimburse yourself, when you log the purchase invoice for rent and then pay from the DLA, money goes out of the DLA, thus the Company owes you money.
As I stated in my above response[quote=“Joe, post:6, topic:279”]
I see your confusion, setting yourself as a supplier and paying the purchase invoice (paying yourself) directly from the Business Account is fine, as long as it’s clear that you as the Director are also the supplier, as this is not evident to your Accountant from the ledgers.
[/quote]
Using the above method, the balance is owed to you as a supplier and is not shown directly on your DLA, hence you should flag this to your accountant, you can use this method if you prefer.
