There are various ways to repay a director’s loan.
- Dividend: A dividend can be declared, and the money can be used to pay off the loan instead of being transferred to the director’s personal account.
- Cash repayment: A repayment is made by transferring money into the company account.
- Expenses or salary: The loan can be paid off using other money to the director, such as the director’s salary or expense reimbursements.
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Download our Ultimate Expenses Guide
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What do I need to do to pay a dividend?
To pay a dividend, you need to:
- Hold a directors' meeting to ‚Äòdeclare' the dividend.
- Keep minutes of the meeting, even if you're the only director. For smaller companies, this may often be just a case of getting the paperwork completed.
- Issue dividend vouchers.
Bookkeeping vs Accounting Differences
As a small business owner, having a good grasp of your business financials is key-even if you've hired an accountant.
While you can delegate your accounting tasks, understanding the basics will place you in a better position when it comes to discussing your business finances with your team members, financial professionals or potential investors.
Previously, we've explained about the top accounting terms and concepts you need to know. In today's post, we'll explain the differences between bookkeeping and accounting. While these two terms are often used interchangeably, they refer to two vastly distinct functions and roles.
When can I pay myself as a Limited Company Director?
Salaries are typically paid out monthly. While dividends can be drawn at any frequency across the year-as long as there are sufficient distributable profits-payments are typically made on a monthly or quarterly basis.
How do I pay my student loan?
If you're self-employed, HMRC will work out your loan repayment amount from your tax return. You make your repayment the same time you pay your tax.
If you're an employee and your salary is above the minimum amount, your loan repayments will be deducted from your salary by your employer.
Contractor Accounting Services
We pride ourselves on providing an unparalleled level of support that will make you feel valued, eliminate your admin and ensure you're being as tax efficient as possible.
VAT registration & filing
We'll registered your company for VAT, and ensure VAT is always filed well ahead of the deadline. We will ask you to confirm that you're happy for us to automatically file your VAT without having to approve it which will ensure that we can get this filed as soon as possible.
We'll also help you get setup with a Direct Debit for HMRC so that you can make your VATpayments automatically without having to manually do this every quarter. This saves you time and the stress of ensuring you've paid on time, and importantly will make sure you don't have to pay a penalty for a missed deadline.
We aim to complete your annual accounts well ahead of schedule to ensure you have complete financial records.
You should never have to guess how much corporation tax is due. We'll make sure you know how much is due and when it's due.
We'll make sure to keep your Companies House account up to date and ensure your confirmation statement is filed on time.
We include a Self Assessment with our operate and grow packages and this is also available as an additional £99+VAT one-off charge.
From your salary, dividends, pension, investments and company expenses, we'll help you optimise your tax.
5 Common Small Business Accounting Mistakes & How to Fix Them
A broad swath of small business owners are tackling the myriad tasks required to pay bills, invoice customers, cut checks to employees and contend with past-due accounts, among other accounting tasks.
While that might work for very small businesses, it often opens the door for firms to make accounting mistakes that undermine their growth and siphon precious time and mental focus from other important areas of their business.
Here are five accounting mistakes that can derail growth for small businesses and how to avoid them.
What are Directors Loans?
A director's loan is defined as money taken from your company that isn't either of the following:
- A salary, dividend or expense treatment
- Money that you've previously paid into or loaned the company
A Director's Loan Account (DLA) is a record of all transactions between the company and its directors. It records not just the money owed by the directors, but also the money owed to them.
Director's loans can be used:
- when you need to access money in your company-apart from what you take out as a salary, dividend or expense treatment-for personal reasons.
- for a variety of purposes, such as covering the costs of a home repair bill, travel plans or any unforeseen personal expenses that may arise.
How do I pay an employee?
If you're paying an employee for the first time, you'll need to set up payroll. You need to take the following steps:
- Register as an employer with HM Revenue and Customs (HMRC) and get a login for PAYE Online.
- Choose payroll software to record employee's details, calculate pay and deductions, and report to HMRC.
- Collect and keep records.
- Tell HMRC about your employees.
- Record pay, make deductions and report to HMRC on or before the first payday.
- Pay HMRC the tax and National Insurance you owe.
Are there any penalties for delivering Company Accounts late?
The following penalties for private limited companies will be imposed if you fail to file your accounts with Companies House on time:
- Up to 1 month late: £150
- 1 - 3 months late: £375
- 3 - 6 months late: £750
- More than 6 months late: £1,500
My tax code is incorrect ‚- how do I change it?
If your tax code is incorrect, you can use HMRC's check your Income Tax service to notify them. If you're not able to use the online service, you may get in touch with HMRC through other contact methods.
Beginner's Guide to Bookkeeping for Small Business
Starting a new business?
Bookkeeping requirements are unlikely to be at the forefront of your mind. At this stage there are more pressing things for you to think about.
However, once your business is taking shape, you will need to start thinking about keeping up-to-date and accurate accounting details of your income and expenses. But what kind of records do you need to keep?
More than just a legal requirement, basic bookkeeping is an essential part of your ability to manage your business effectively.
Every year, your business accounts will need to be completed. If your business is operating as a limited company, you will need to submit your company accounts to Companies House. If you are self-employed, your business accounts will be used to calculate your Self Assessment tax liability.
Your bookkeeping records will form the basis of these statutory financial statements. They should include information relating to your sales, your expenses, salaries of you and any employees, along with other bank transactions.
It might sound complicated, but take it one step at a time and it's actually quite manageable.
If you're really struggling to stay on top of it all, there are plenty of small business accountants and professional bookkeepers who will be happy to help. So, even if you're terrified of numbers, rest assured that there's a solution out there for you.
When Should I Hire a Small Business Accountant?
If you're a self-employed person or small business owner, you might have already asked yourself the question, "Do I really need an accountant?"
When people ask that, they usually mean, "Can I justify the cost of an accountant?"
It seems simple: Hiring an accountant might seem like something you could do without, and if you handle the accounting yourself, you save money.
But that isn't the best way to think about it. The reality is that there are hidden costs associated with DIY accounting, and you don't want to come up short. So instead, ask yourself, "Will hiring an accountant add value to my business?"
The answer is yes.
Below, we'll cover the key cases when you should hire an accountant:
How do I pay myself through a Limited Company?
As a limited company director, you can pay yourself through:
1. Taking a salary
As the director of a limited company, you're also considered an employee. As such, any salary you draw will be paid through the PAYE scheme-similar to how other employees of the company will receive their pay.
You'll run a payroll, report to HMRC and receive your salary (after taxes have been deducted at source).
A dividend is a payment of profit that a limited company distributes to its shareholders.
While dividends can be drawn at any frequency across the year-as long as there are sufficient distributable profits-payments are typically made on a monthly or quarterly basis.
How do I pay national insurance?
How you pay your National Insurance contributions depends on your employment status.
If you're an employee, your National Insurance contributions are deducted from your wages before you receive your salary. Your contributions are reflected in your payslip.
If you're a limited company director, you may also be an employee (at your own company). As such, you pay Class 1 National Insurance through your PAYE payroll.
If you're self-employed, you pay Class 2 and Class 4 National Insurance depending on your profits. The majority of self-employed workers pay National Insurance through Self Assessment.
If you're employed and self-employed, your Class 1 National Insurance will be deducted through your wages. You may also need to pay Class 2 and Class 4 National Insurance depending on your self-employed profits.
Contractors - should I be paying myself salary and dividends?
As a contractor, how you pay yourself will vary depending on whether your contract is subject to IR35.
- Contract subject to IR35 (inside): Salary
- Contract not subject to IR35 (outside): Salary, dividends + reimbursing any expenses you have paid for out of your own pocket
We've provided a more detailed explanation in our Forma Help Center resource.
Do I need to be set up as an Employee in my new Company?
As a limited company director, you're classed as an office holder. You aren't automatically an employee at your company-even if you're the sole director and only person working in the business.
It's isn't mandatory to be set up as an employee at your new company. However, there are benefits to doing so if you aren't employed elsewhere, as you'll be able to take advantage of your tax free allowances.