When I spoke to my accountant, he said create an expense account for salary which I have done. My company is a ltd company and I am technically a director (owner of the company). I take a monthly salary and quarterly dividends.
Is the advice for creating the salary as drawings under equity only applicable to sole traders and partnerships or is my accountant wrong in stating that my salary goes under expenses.
I am happy to have the salary under expenses because then my salary is deducted as an expense which reduces my tax bill.
I have followed my accountants advice and created a capital account under my name and renamed drawings as dividends to record all my dividends which are not expenses therefore should not appear on the income statement.
This was done under the advice of my accountant and I just want to make sure that he is correct based on the type of company that I have - a ltd company. I am reasonably certain that the advice given in the topic I have linked is only applicable to sole traders and partnerships. Is this correct?
Your accountant is correct. If you are an employee (even if it’s your company), you should create yourself under Employees tab and issue yourself payslips. Or you can just pay yourself directly from bank account and allocate the payment to some salary expense account but then you have to keep track of other payroll liabilities outside of Manager.
Thank you. I was sure that he was correct, because I vaguely remember this from my accounting classes back in school. But I just wanted to double check.
I have not bothered with employee tab and payslips as I set the company up to pay salary at the tax free amount, so I don’t need to track paye or National Insurance contributions. This is the main reason why my accountant advised me to set up a limited company. I just create an invoice and pay the salary that way. I know that I don’t need an invoice technically, but its just a nice paper trail for me to track expenditure.
I only use the Capital Accounts Module for dividends as that does not fall under expenses. Thanks for the confirmation.