Business loan - The Book-keepers Forum (UK)

jillemily · Veteran Member

Business loan

Shamus · Forum Moderator & Expert

Hi again Jill,

Just back from the school run so sorry for the delay.

Sounds like yet another bod using their business as a personal piggy bank.

The way that you phrase it sounds like a sole trader but could you just confirm hat we're not talking about a limited company before I attempt to answer this one as the answers are quite different.

Cheers,

Shaun.

jillemily · Veteran Member

Yes sole trader

Shamus · Forum Moderator & Expert

Simple case then.

The loan is in the name of the business and needs to be included as a business loan.

The amount taken out to pay personal debts are drawings.

No mention is made anywhere in the books of the debts that were paid off as they are nothing to do with the business, the only record that needs to be made is that the owner took the money out of the business.

So, owner capital is reduced.

Full double entry would be :

Credit loan account full amount.

Debit bank amount of the loan.

Credit bank amount of the drawings

debit owners Capital amount of the drawings.

Simples.

BackOfficeGroup · Guru

Yep, I agree with Shaun!

Do you do anything else but trawl these pages like me Shaun?? :)

Shamus · Forum Moderator & Expert

Hi Philip,

I tend to have it on in the background so almost permanently logged in even when not at my desk.

Nice to think that occasionally you can help newbies that way give it a year or so and hopefully they'll be doing the same for others.

Really like the fact that this site seems to have a genuine sense of community. I know that hypothetically we're all in competition with each other but that doesn't for the most part even seem to come into the equation.

BackOfficeGroup · Guru

Its great to have a site that it genuine in its answers to everyone.

I agree we are in competition but we are a very global bunch it would appear, so treading on toes doesnt seem to be an issue...

I have mine on all day also, quite easy to just refresh and take a look every once in a while.

P

jillemily · Veteran Member

Thanks again Shaun I didn't get it too wrong so just have to make minor adjustments.

This site has helped me loads and although we are in competition we all have the same goal -getting our clients books/accounts done as accurately as possible. As someone that is starting out this kind of help is invaluable! Real bookkeeping is very different from coursework.

Jill

Shamus · Forum Moderator & Expert

I think underlying principles are basically the same.

Our main problem seems to be that clients don't realise where the work of the bookkeeper stops and that of an accountant begins.

Whilst at times their is a real knowledge crossover between bookkeeping and accountancy sometimes if you're quite new to this a clients expectations have you believing that you're not doing what you should be doing for them.

Problem is, if you do all the things that a client expects you would be way outside your remit as a bookkeeper and find that you've invalidated you PII.

good luck and keep the questions coming. Always happy to help where and when we can.

Shaun.

Sweetpea · Veteran Member

I have to agree with Shaun and Philip,this site is genuine and is lovely to see how the bookkeepers help each other!I am a newbie,I have just found this site and I have already learned so many things from here.In a couple of weeks I should have my exam passed(level II) then I can start practicing as I already have a client.
And hopefully in a year or so I would be able to help other newbies on this site just as much as I have been helped :)

Harps · Veteran Member

Hi there.
I agree, everyone is helpful on this site and I hope to be able to cintribute as my experience and confidence grows.

Going back to this initial question, what would have happened if it had been a limited company? I have a customer who is waiting for a loan to be paid into his account and I have a feeling this may be used to pay self assessment tax bill, companies house fines and corporation tax. He is in a bit of a mess at the moment due to the lack of his accounting records being maintained. Am I right in thinking that the companies house fine and corporation tax will be business related and the self assessment treated as personal?

Thank you in anticipation.

BackOfficeGroup · Guru

If the loan is in the business name then it will be entered into the business and then used to pay the debts.

The SA paid will be classed as a Directors loan paid out.

Is there anything else Shaun?

P

Shamus · Forum Moderator & Expert

Hi Harps, Phillip,

Sorry for the delay but bit of a busy day today.

as it's a limited company that your talking about remember that the limit of the director loan account should be restricted to £5000.

The self assessment relates to the individual not the company. The money must be paid by company to the director (Salary / Dividend / etc.) and then the director may pay his tax bill.

The money does not come from the company to HMRC for the SA. This would be treating the company as a private piggy bank and be reason to lift the veil of incorporation.

Companies house fines are the responsibility of the director not the company. The director has a fiduciary duty of care for the company and may be sued by the company for dereliction of duty. In most cases this does not happen but remember that for tax purposes fines incurred are not an allowable expense of the company.

Payment of corporation tax using this money is fine. It's just a loan so a general introduction of capital into the company for the companies use. The case would have been different had this been a grant.

Hope that this helps,

Shaun.

Harps · Veteran Member

Thanks for that Shaun.

It really has clarified matters, I think I misinterpreted some information on a HMRC course I recently went on.

You are a really big help, I hope I have the extent of your knowledge in a few years!!

Thanks again.