I made lots of ‘out of pocket expenses’ purchases in the first couple of years of running my business, so the DLA is a long way in debit.
Now there is cash in the bank, I know I can draw it off against the DLA to bring it back into balance.
My question is am I better off doing that, or should I keep a sizable debt in the DLA and pay myself some PAYE salary?
Thanks for any advice
If I understand correctly, you operate a Ltd company and it owes you the amount showing in the DLA because you paid it from your own pocked, effectively putting that money into your company.
If that’s correct the DLA will be showing a minus amount and that money can be taken out of your Ltd company anytime as its owed to you.
You have not provided any business profit detail or personal income detail to be able to look at using PAYE as a means of income but as a rule of thumb after taking your own money back out, for 2018-19 £8,424 is usually taken as PAYE followed by dividends
Hi George, thanks for your reply.
Yes that is right, my Ltd company owes me monies paid out of my own pocket that have been assigend to the DLA.
I am not sure what my profit is yet for the year just gone (my accounting year finised on 31 July) but roughly speaking the bank balance is at 5k and the company owes me 15k and there are no other debts that that 5k has to service.
So I think from what you have said that as the bank balance rises, I should transfer some of it to my personal account until the DLA has reduced to nearly zero, and then at that point start to pay myself through PAYE. And then think about dividends some time later in the future.
So for future reference. You should never take back money from the dla as a salary.
If the company owes you money via the dla is it not considered income nor is it taxable in that instance.
The only time you may consider converting a dla account to a salary is if its overdrawn (you owe company money) and that way you have repaid the dla by drawing as a salary and being taxed on it. (not actually drawing any money but simply reducing dla to 0 and increase paye to cover the amount owed)
Isn’t it the other way round? If you owe money to the company then the DLA “bank account” would show a positive balance (debit in nominal account terms, showing as an asset on the balance sheet). An “overdrawn” DL bank account (credit/liability) would mean the company owes money to the director.
Thanks for your reply.
The company owes me money, so I was suggesting paying that to myself as you said not as income, nor salary, just withdrawing it and assigning that withdrawl against the DLA.
The questions was should I clear that DLA balance before I start paying myself through PAYE, or is there some benefit, in terms of reducing corporation tax liability, to paying myself a salary before having settled that loan.
Both settling the DLA and paying myself a salary will transfer funds from the company to myself personally. I was just struggling to work out which was the best to do first.
This is the sort of question that can only really be answered by your own accountant who has full visibility of your specific circumstances (anyone who is actually qualified to give such advice probably wouldn’t do so on here anyway in case it was considered regulated financial advice). It’s probably worth paying yourself a minimal PAYE salary (the £8,424 referred to by @George_H above) simply to get credit for the year on your NI record but beyond that you should definitely ask your own professional adviser.