Non business purchases by Ltd Co. - The Book-keepers Forum (UK)

Sirocco · Member

Non business purchases by Ltd Co.

Shamus · Forum Moderator & Expert

Another director who thinks that the money in the company belongs to them! Makes you scream doesn't it.

The VAT is part of the purchase price rather than being deductible so the actual amount is £10,575.

The whole sum can either be a withdrawal of owners capital from company (if a sufficient balance exists), a dividend or salary. (It's really too large to consider as a directors loan account).

If the company is subject to IR35 legislation then dividend is unlikely to be an option as the only dividend available would need to come out of 5% of turnover which leaves this as salary.

Interested to know what other peoples takes would be on this but as I see it the guy just paid himself £10,575 of extra salary this year!

all the best,

Shaun.

attilabenko · Guru

Hehe, maybe suggest to him he should take 10.5k less as his salary this year, just to see what he would say.
You see I was just telling someone on another post about bookkeeping in Hungary and there we not only have sole traders,partnerships and all sorts of ltds but there is another category in between what eliminates the need of these one man companies so a director and a secretary company can operate almost like a sole trader here but with limited liabilities

Shaun, how are you anyway?

moxby · Veteran Member

Okay, my opinion is this.

It's a personal expense. It's not something that's a benefit as per the usual understanding of Benefits in Kind.

So, our friend has a £10.5k debit to his directors loan account (and the VAT can't be reclaimed as it's not a business purchase). There's nowhere else for the transaction to go.

If his DLA is in credit by more than this then we have no further work to do.

If it is not and this transaction makes it a debit then either

1. Dividends to the DLA (not cash) - but this depends on having sufficient P&L reserves to cover it.
2. Not take salary in cash until the DLA returns to credit.

If the DLA ends up as a debit of more than £5,000 then this is a beneficial loan and to avoid this being a benefit on a P11D then you will need to charge 4.75%pa interest (per HMRC beneficial loan rates) on the DLA.

Depending on the year end this is the only issue. If he has a DLA overdrawn at the year end, then he MUST be able to repay it before 9 months after the year end or else the company must pay a 25% penalty tax on the overdrawn amount (what was called s419).

That's where I stand. Hope it helps.

adi2402 · Senior Member

agree with Moxby but would add that if for whatever reason this transaction is taken to the directors loan account and it ends up with old S419 tax paid (is this S455 now, cant remember), the director should be advised that this tax payment will be refunded at some point after the overdrawn directors loan account is cleared. May be useful to mention is the company will not be in a position to pay divi's for a year or two.

The director is probably not in a position to not take a salary in cash for a few months, however a bonus could be considered which would be transferred to the directors loan account although could be quite expensive tax wise. I like the divi route myself.

-- Edited by adi2402 on Saturday 9th of October 2010 05:08:35 PM

moxby · Veteran Member

Please just call me 'Martin'

Thanks!

adi2402 · Senior Member

cheers martin, should have looked at your footer.

semsley · Guru

I dumped a client like this. She just woudn't stop putting personal purchases through the Ltd company (either paid by company cheque or company cr card), stuff made out in the company name but being used on renovating her home, etc. etc. I advised her accountant too but nothing would stop her.

Amanda · Expert

Hi Shaun,

Nice to see your back again! What happened to your avatar??? Is it time for a change???? If so whats the theme?

Cheers
Amanda

Sirocco · Member

Thanks all for the helpful observations.
I think the way forward will be post to DLA and advise the client at the year end (03/11)

Shamus · Forum Moderator & Expert

Hi Amanda,

Hope that you are well.

Everyone else appart from you is allowed to change their Avatar! (I think site membership might drop dramatically if you did).

I'm not back properly until after Christmas when everyone's likely to be too busy to chat (fingers crossed for everyone there).

As for my Avatar, just thought that it was time to bring the fat cat back again as I've got my bankers head on at the moment.

Talk soon,

Shaun.

Amanda · Expert

HI Shaun,

Are you up in Scotland till Christmas then???

I have no idea what to change my avatar too so maybe I will just keep it for a while longer!

Hope you are keeping well up there and enjoying weekends with your son!

Hows the studying going with the ACCA?

cheers
Amanda
PS:- sorry everyone seem to have high jacked this thread!!!!

-- Edited by Amanda on Friday 15th of October 2010 12:04:37 AM

Stardoe · Guru

How about we all change our Avatars to cats? That way Amanda gets to keep her Lucy as she was a bit catty...lol