I want to withdraw some funds from my business account to pay an unexpected personal bill that my salary wont cover using my directors loan account.
In setting up the account, am i right in saying that from the point of view of the business, a loan made out to me the director is an asset to the business?
Likewise if i deposit money into the company that isnt sales related, this would go into the Directors Loan account and be marked as a liability to the business?
Yes setup directors loan account as asset on balance sheet, then do bank spend and allocate to DLA. When you receive money, do bank receive and allocate to DLA.
When I do div certificates, I guess its just ok to mark the payoff to DLA or is there another way?
don’t know what you mean about certificates unless you do board meetings, but if you mean offset dividends against the DLA - yes you can do that! thats what I do.
Just checking. When i withdraw to directors loan account, i have to make sure i don’t withdraw more than 80% of the available profits correct? As 20% should be kept back for corporation tax.
Yes and No! Its not quite that simple. Corporation tax is 20%, but you won’t know what your profits will be until the end of the year as there always unexpected expenses, income you didn’t expect to get etc. If you know for certain what your profit will be, then why go with DLA, just declare the dvidend now.
This is a point that I would raise with your accountant as they can best advise you for your particular business.
There are a number of factors to consider.
Firstly, when a dividend is declared and paid out, it is not necessarily paid out of the current year’s or period’s profits, but from the total of all historical profits, which will include those of the current trading year.
Keeping back or holding funds in order to settle corporation tax liabilities at some point in the future is always a wise move, however, this is more to do with what you have in the bank at any one time, and what you might reasonably expect to have in the bank at a future time when the tax is due to be paid. Timely forecasting and budgeting will help with that.
It should also perhaps be noted, that with most businesses, the amount of funds (ie cash in the bank) generated over a period of time does not typically or necessarily represent or equate to the value of distributable profits, and the two should not therefore be confused or treated as being equal.
As @dalacor has rightly pointed-out, your accountant can best advise you according to your circumstances.
Thank you for all your help.