Hello
‘Non-bookkeeper’ here looking for advice to clear my confusion.
I have a small nominal monthly payment from my limited business account to my personal account that logs as ‘Salary’ and appears as a transfer from the business bank account to DLA. This is mainly to satisfy the requirements of the personal current account terms for regular credits.
Then I have a number of usually small director’s expenses (post office/small cash purchases etc) which are ‘paid from’ the DLA.
Because the ‘salary’ payments far exceed the ‘cash expenses’, the DLA balance just increases continually. After several years, this will begin to look like a big chunk of money.
My uneducated question is, is this normal? Does a DLA just continue to increase or is there some accounting procedure for ‘settling’ the balance?
Or am I accounting salary incorrectly?
There are various tax implications which should be considered when paying a director, such as using PAYE or paying dividends.
You can have a look online for the various advantages and disadvantages of both methods
Really everyone’s circumstances are different and I would recommend having a discussion with your accountant about this (for tailored advice) before deciding what to do.
If the increasing balance on the director’s loan account is a debit, i.e. it is money owed to the company, then you would need to pay it off by transferring some funds into the company bank account from your own account. There are potentially tax implications in a loan being made from the company to any director which is not paid off within 9 months of the financial year-end.
In addition, if the balance is over £10k, there are personal tax implications for the director.
You are entitled to receive a salary from the company for your services, but unless this is less than £123 per week (and no other employees are paid more than this) then you would need to run a payroll and account for PAYE and NIC.
Alternatively, assuming you are also a shareholder, and the company has distributable profits, you could also declare a dividend, which could be used to repay the loan.
I strongly suggest you discuss the situation with your accountant and if you don’t have one, I suggest you find one so that you understand the implications of the payments you are making.
I have to say I run my salary through the DLA (and my accountant seems OK with how I’m using it). I run a quarterly journal from Director’s Salaries to the DLA, accounting for PAYE etc. I then take payments as required via the bank account recorded as a transfer from bank account to DLA. Mostly at the moment the company owes me money! What seems missing from the original post is putting the salary into the DLA in the first place? I’ve done dividends similarly in the past, but using Dividends Paid → DLA.
You would be best discussing the situation with your accountant. If you don’t have an accountant, we have a panel of accountants to choose from, for more information, please see the following link:
In your salary journal which accounts for PAYE etc. instead of using net pay for the amount due, the credit just goes straight to the DLA. So, Dr. Directors salary, Cr. PAYE/NIC, Cr. DLA. Then when the payment is made, Dr. DLA, Cr. Bank account and this clears the amount from the DLA
Many thanks
I’ve reassigned the monthly salary payments to director PAYE salary. My accountant handles salary/dividends etc. but not within Quickfile. Now DLA owes me which is how it should be.
What seems missing from the original post is putting the salary into the DLA in the first place? I’ve done dividends similarly in the past, but using Dividends Paid → DLA.