Mis-use of Business Credit Card

I’ve inadvertently used my business credit card for personal use. Can I charge this to the Directors Loan Account as it still owes me money or is there a better way to deal with this?

Yes that is exactly what you should be doing.

How much do you want on a “Director’s Loan” to be outstanding? If, you a Director of your own Company you should be wanting nothing as the answer; otherwise you are doing yourself an unjustice.

There is a method that I have engaged to deal with this type of personal payment on a business account. This involves allocating the purchase transactions to a seperate Nominal Ledger account (Personal Expenditures) added as an Assets Account easy to identify on the Balance Sheet. At the Month End the balance showing for purchases that have been allocated to those Personal Expenditures have a Credit Note raised to remove those transactions from the business (Self billing). I know how a Proprietorship works as I have been self -employed, and so the personal expense would be allocated to Proprietors Drawings Account, but a similar arrangement would be the case for Directors of a Company. This process also removes any miscalculation in a VAT Return.

Having such a procedure in place stops you from worrying about whether to use your business credit card.

How does that account for when personal expenditure exceeds 10k and tax is due on it?
What about when you need to repay the money you’ve spent? Self employed don’t need to directors do.
How does that help if hmrc start an enquiry and ask to see a running transaction list of the directors loan account?

Have you considered the possibility that the directors loan account already sits on the balance sheet and simply viewing it each month end to determine what’s outstanding is all you need do?

How easily do you believe it to be to sift through all those personal purchase receipts and remove them from the accounts shouod you get an enquiry? Further to that how would you think hmrc would feel having to reconcile purchase receipts that arnt. business related against credit notes?

And lastly any personal purchase from a business account should not and would not have a purchase receipt included in the business, it would be tagged as a personal expenditure only.

Self employed can do what they like with their money, if you pay for something unrelated to the business that’s fine, directors on the other hand are completely different.

There are a number of reasons why a directors loan account may sit as an asset on the balance sheet. Company owes the director money, company purchased good will etc. There are also times when the company doesn’t have enough funds to pay out the directors loan account in full. And therefore a personal transaction can be offset against what’s owed to reduce it.

Also just so you know. Allocation to a directors loan account doesn’t affect a vat return. Creating a purchase receipt as you suggested would.

Hi Paul, my suggestions that I proposed are friendly advice, if you consider them contrary best if you look elsewhere. You are rather retaliatory in the way I support this forum Too much mate! Look somewhere else for how too fix your problems. As i said in my reply perviously I do not have any knowledge of of the accounting for Companies. Sorry you seem to have got rather frustrated with my reply. Alan

Alan. I’m not frustrated with your reply, I’m frustrated that you decided to give bad and potentially costly advice to someone when you know nothing about how Ltd companies operate.

My questions were genuine and were intended to make you think how the way you do things may not only impact you but others you advise.

I have no idea how you have helped this forum since I’ve never seen you post anything before, or rather I haven’t took much notice if you had.
These are not my problems so I’m abit confused with what you state. However I have been in the accountancy sector for over 20 years so I’d like to think I have some knowledge on the subject.

All personal expenditure incurred through the company, whether bank account or credit card, should be allocated to the director’s loan account. In small owner-operated limited companies, where the director(s) are usually the shareholders also, this is acceptable, although in larger companies this shouldn’t be happening.
Very often the director(s) will have initially loaned the company money to start up. These items can be viewed as going towards repaying that loan.
Business expenses such as mileage claims and use of home should also be allocated to the directors’ loan accounts, further reducing the balance, as should dividends.
Often, as @Paul_Courtier says, there may not be enough funds, especially in the beginning, to repay the director(s) in full so they draw money as and when it’s available.
A small debit balance on a director’s loan account is not usually an issue, as long as it is cleared promptly - s credit balance is to be expected in small companies.

All transactions with directors need to be clearly identified and separated from all other expenditure and the director’s current account is the correct way to do this. You can run a separate current account and loan account, but in practice it is easier (and more realistic) to combine the two.

Which account are you putting the purchase transactions and credit note to, may I ask?

As mentioned, I’ve inadvertently used my business credit card for personal use. I haven’t tagged this yet as I wasn’t sure how to deal with the transaction. I’m not an Accountant and so not sure how to account for the transaction in terms of book keeping. I’m using the Directors Account to account for mileage expenses and initially put some personal funds onto the account, rather that taking out a loan, purely to get my business up and running. If I charge the recent transaction to the Directors account, I’m still not sure how this impacts on my book keeping records, hence my initial request for advice on the Quickfile Forum. Any help in this regard would be greatly appreciated.

You can just tag it straight to the director’s loan account. It doesn’t really impact your accounts other than to decrease the balance that the company owes you for repayment of the loan and mileage expenses. It doesn’t affect your profit and loss (or VAT if that’s applicable) as the director’s loan account is a balance sheet account representing money the company owes to you.

Feel free to message me directly if you need any more help.

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Hi Claire

Thanks for clarifying the situation for me, great help.

Could I also ask your advice on a separate accounting matter. My annual accounts are due to be posted shortly, but I’m aware that I have not entered any costs that relate to utility costs (I work from home), can I still enter these on Quickfile, even though the accounting period ended 31 October 2019?

Not sure what mean by Utility costs, if you mean all utilities: Gas, Electric, Water, Council Tax, and maybe even Landline and broadband.
I see that no one has answered your question on this probably because as a limited company the rules are complex, unless you use the HMRC’s £4 per week for “employees use of home as an office” (rising to £6 per week from April 2020)
Here is a link for general advice on the subject https://www.itcontracting.com/limited-company-work-from-home-expenses/

The above links mention use of home Licences for small Limited companies. I’ve seen basic licence agreements from £25 to £100 a month covering 1 work space in the home, including use of kitchen and toilet facilities, use of internet and landline calls included.

Sorry for the delay. Yes, you can always enter backdated costs up to the date at which you file your accounts. In fact, there are often costs you won’t know until after the end of year. By all means claim costs for working from home. I’m assuming you are a director and it’s a limited company. In which case, it is standard practice to claim £18 per month for “use of home” per director. If, for instance, there are 2 directors living at the same premises, they can each claim £216 per annum.
This only covers utilities but excludes telephone and broadband, so these can be claimed separately. You can claim a percentage for your bills based on a reasonable estimate of your business use.

You can calculate a percentage of utility bills based on actual use, but this is time-consuming to do and often comes out no better than the flat rate.

I have read your reply but still consider you are rather agressive in what you expect from such an arena where anyone can put their pennies worth to add to a discussion. As I originally posted I do not have knowledge of what Company Accounts entail. What a b*gg**!

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