A procedure for expenses requires the following
- creating a new supplier for each director
- then pay that “supplier” from the Director Loan account,
- then paying the director loan account from our bank account
Can we skip stage 2 and pay the supplier (which is the directors expenses) directly from the bank account?
Would there be any negative effects of this?
Are you a limited company?
Suppliers are paid via the business’s bank account so why would you want use a Director loan account for that?
Yes we are a limited company.
We are looking at staff expenses and following the methods outlined here http://www.qfaccounting.co.uk/detail.aspx?id=3801920
The two staff members are directors and we thought we’d like to keep things consistent with the mileage payments outlined here:
To do so we were going to pay the staff expenses from the directors loan account first, before paying the money out the bank account to the loan account.
I am wondering why bother with the director loan account at all? It is suggested to deal with mileage, but not expenses… when and why do we use the loan account, can everything be kept in the suppliers as debt/money owed?
The writer of staff expenses was Joe Chaer, maybe he can answer your question as I don’t understand what you want to achieve when you say:
The directors loan account cannot pay staff expenses, it can be used to record business expenses that a director pays out of his own pocket during the month or any period. This accumulates as money owing to that director. Then at month/period end the money is paid to that director from the business bank using the Dir Loan Acc as the nominal code for that bank payment.
If each director has a separate dir loan acc all expenses are itemised and allocated to the correct nominal codes when entered.
Some use the dir loan account to put money into the business if its needed for cashflow, to be drawn back out when profits can afford it.
Some use the dir loan account to take money out of the business then use the dividends to pay it back at year end, but there are several tax rules about doing this.
If we ignore the fact that it is a director for now. Then the suggested procedure for staff expenses is to make each staff member a supplier.
Each expense is uploaded put through the supplier as a company purchase.
The staff member is then paid back from the bank account and this is tagged as money paid to a supplier.
Is there any reason not to do it this way for directors also?
It may work however it really depends on how you are marking those expense invoices as paid. Typically you wouldn’t be able to pay them from the company account as that won’t reconcile with the company’s bank statement.
That’s why you pay to the Directors’ Loan Account (a type of bank account), so you’re tracking the balance of that account (on the company’s balance sheet) and when you reimburse them you just tag the money out of the current account as a transfer to the DLA.
Rather than create a supplier record for each staff member it makes more sense to create a loan bank account. When the staff member pays for expenses out of pocket, it gets logged to this staff member’s (psuedo) bank account pushing it into the red. This reflects on the company’s balance sheet as a liability, i.e. in future it will need to pay that staff member back.
Whether it’s a staff member of director really doesn’t change the accounting that much.
This makes sense, and I’d prefer this, but I don’t know how to do individual transactions for mileage as thre recommended method required creating an invoice, for the full amount, deducting the fuel element, then adding this back on with 20% VAT. http://help.quickfile.co.uk/main/1/business_mileage.htm
In the case of mileage, do I still need to set up a supplier? If so, I might as well just make an employee the supplier always. This would save the transfer from the director loan account, then a transfer from the bank to the loan account.
Then instead I’d tag the bank transfer as credit to employee supply account. Then in the employee account I’d attribute the credit to the various expenses.
Is the main problem with this method that the expenses are not necessarily attributed to the correct nominal codes?
Basically it seems a little complicated to have one method for mileage expenses and another for the other expenses.
Each journey should be accounted for as a line on the invoice as follows. You can do one journey per invoice or multiple journeys per invoices, it’s up to you.
Add each journey on a separate line. Be sure to state the following details in the description field.
The reason for the journey
The date of the journey
The number of miles travelled
The rate reclaimed (e.g. 45p). Refer to the current HMRC rates for approved mileage.
Any corresponding transactions get logged as payments to the invoice from the DLA or employee loan account.
You could set each employee up as a supplier but this is not necessary, you’re already able to deduce individual supplier expenses by reference their corresponding loan account.
The concept of logging expenses for mileage or otherwise is the same in QuickFile and most other accounting systems. The allowable part of the expense is logged into QuickFile on an invoice then paid from the employee or director’s loan account.
I am sure that I am a bit of a pain, but slowly getting used to the book keeping.
When I make the invoice, do I make the supplier “Mileage costs” or something similar and just use a this general supplier account for all milieage. Then, like you say, the corresponding invoice and expense is associated by the DLA/ loan account?
No problem at all!
Yes the supplier name can go down as “Supplier Costs”. That would be fine.