What is a directors loan account (DLA)? How do I use a DLA? Also, how do find out how much is in my DLA? Then what happens if I don’t repay my DLA? These are all questions every company director should know the answers to. If not, read below.

CloudBook Online Accountants, since 2013, are specialists in online accounting such as Xero, QuickBooks, and Pandle. To get the most out of your software you need experts like us to help you throughout the year. We include help with the the software in our cheap monthly fixed fees.

directors loan account

Directors Loan Account

What is it?

A DLA is where you categorise non-business transactions between a company and its director. The balance in a DLA shows how much the company owes the director (credit balance). Or how much the director owes the company (debit balance). If a director owes money to the company, you can call this an overdrawn directors loan account.

How do I find my DLA balance?

If you use online accounting software (you should!), run a report called a Balance Sheet or Trial Balance. You should find a line for the Directors Loan Account, or Shareholders Loan, or Owners Funds. or something like that. On a Trial Balance, if it’s in the debit column, that’s bad – you owe the company money (overdrawn DLA). If it’s in the credit column, the company owes you money, which is good. On a balance sheet, if it’s a positive balance in the Creditors/Liability section, that’s good. But if it’s positive and in the Assets/Debtors section, that’s bad. Obviously, reverse those if the balance is negative.

If you don’t use online accounting, you’ll have to take the DLA balance from the last set of accounts prepared, then adjust it for all the DLA transactions since then. Good luck! Did we mention online accounting?!

Tax on an Overdrawn Directors Loan Account

It’s important to know how to record a DLA properly and to check its balance. The reason being, is that an overdrawn DLA at a year end can cost the company 33.75% tax (was 32.5%) on the balance. So, let’s say a director owes money to the company at the company’s year end. The director has 9 months following the year end to repay the loan back to the company. If it’s not repaid, the company will pay tax at 33.75% of the balance still owed to it 9 months after the year end. A company receives a refund of that extra tax, 9 months after the year of repayment (or reduction).

Another tax implication, is if a loan to a director (or any employee) exceeds £10,000. If it does, interest needs to be charged at the official HMRC rate. Otherwise, that loan is taxable on the director as a ‘benefit in kind’ and they’ll pay 20% or 40% tax on the interest that should be charged.

How do I use a Directors Loan Account

Company transactions

If a company makes a payment to a director, that is not wages, expenses or dividends, because it’s not for a company cost, categorise the payment to the DLA (debit).

Also, categorise a payment/bill (debit) to the DLA if the company pays for something on behalf of the director because that’s like giving the director money. For example, personal expenses put on a company credit card.

You should categorise income (credit) to the DLA if the company receives money on behalf of the director because that belongs to the director not the company.

If you don’t pay the full amount of dividends directly to a director/shareholder, you should categorise them (credit) to the DLA. The transaction date becomes the dividends payment date.

Director transactions

If a director pays out of their own pocket for the company’s costs, or incurs expenses on behalf of the company, the company should debit the expense category and credit the directors loan account.

If a director receives income on behalf of the company, the company should record that amount as a credit against sales/vat/debtors and a debit against the DLA.

Actual loans between the director and the company are also DLA transactions. So categorise them to the directors loan account.

 

Online Accounting Software

Recording a Directors Loan Account is easy when you use online accounting software. There are many other benefits to using online accounting software which you can read about here. We are Xero Accounting specialists but we don’t make you use any particular software – choose your favourite! We can also help you use your choice of online accounting software to record a DLA. See some other online accounting software we support and you can see our fixed fees here.

 

 

As we’re online accountants working from home, one question that nearly always comes up is: what expenses can I claim when working from home? Whether you have a self-employed business, or you are an employee (director), it’s worth checking that you’re claiming the correct amount of expenses when working from home.

what expenses can I claim when working from home?

Types of Working From Home Expenses

Self-Employed Expenses (not companies)

If you use part of the home solely for business, even for a short amount of time, you can claim a proportion of all the relevant costs listed below. Alternatively, you can claim a new fixed amount, which is £10 per month for working 25 to 50 hours per month, £18 for 51 to 100 hours pcm, or £26 for over 100 hours pcm. You can read HMRC’s guidance on that here.

Employees and Directors

Employees (including company directors) working from home can claim in a few ways. There’s a flat rate claim of £6 per week (was £4 until March 2020). Or you can claim a proportion of heating and electricity and business calls. Or directors could effectively sub-let part of their home to their company using a licence agreement. With a licence agreement, directors can claim more costs such as mortgage interest or rent.

Employees would normally claim their expenses when working from home (e.g. £6 per week) directly from their employer who should reimburse the amount claimed. If not, employees who have to work from home can claim tax relief for the costs instead. If you don’t prepare a tax return you can claim the costs on form P87 from HMRC.

Which Working From Home Expenses Can I Claim?

The fixed rate of home working expenses (e.g. £6 per week) is set at a level to cover all of your home-working expenses. So you wouldn’t be able to claim anything in addition to the fixed rate. Otherwise, here are the costs that you can include in your calculation.

Only the self-employed or licence holders can claim these costs

  • Rent or mortgage interest (not capital)
  • Council tax
  • Home insurance (if no separate business policy)
  • General repairs & maintenance (e.g. roof)
  • Telephone & broadband rental
  • Cleaning

All home workers can claim these costs

  • Electricity
  • Gas/heating
  • Business telephone calls (all)

How much of my expenses can I claim for working from home?

You probably won’t have separate business and home bills for most of the costs above. So you will need to calculate how much of each cost you can claim. You would usually calculate the claim by floor area (or rooms in use) and/or time, but it could be more appropriate to use other factors such as number of people, or proportion of business telephone calls. There are no strict rules on how to do this, because each case is different.

For example, if your business use of the home is one room out of 5 usable rooms, you could claim one fifth or 20% of the costs. If you use that room for personal reasons half of the time, you should only claim 10%. But if 20% or 10% isn’t a reasonable estimate of the use of any of those costs, you could use a better method such as hours occupied in the office compared to the whole house.

Capital Gains Tax Trap

If you claim that part of your home is used exclusively for business, the principal private residence exemption for capital gains tax will not apply to that part of the house for the time it was in business use. However, if you have a little personal use of the part of the home used for business, it will normally qualify for the exemption.

What evidence do I need to claim expenses when working from home?

If you are claiming the fixed rate expenses (e.g. £6 per week), you don’t need any evidence or workings for your costs. You should keep a note of at least once each tax year when your employer required you to work from home.

For other types of claim, you should keep your home bills and your workings safe for at least 7 years. That’s in case HMRC want to see evidence of what expenses can I claim when working from home.

Summary

It usually pays to know exactly what expenses can I claim when working from home. So that you know that you are claiming the most homeworking expenses possible. It’s usually not the flat rate, so estimate and claim your actual business use of home expenses. But be aware that it is more restrictive for employees and directors. As always, keep your workings and invoices to support the claim.

If you have any questions or comments please contact us. At CloudBook Accountants we provide proactive advice like this to our clients throughout the year. Plus it is all included in our monthly fixed fees from £20 per month. Get an instant quote from our website now.

Directors Loan Account in Xero

directors loan account in xero

Xero Accounting are leading the way in the UK with online accounting software. In our opinion Xero is the best and easiest to use online accounting software for small businesses. Recording a Directors Loan Account in Xero Accounting is easy. See our Directors Loan Account page for more details about what it is. If you need specific help with Xero, we are Xero specialist accountants – see our fixed fees.

Setting up the Directors Loan Account in Xero

Xero provide by default a Directors Loan Account (830). However, it will be much easier to avoid using the default Directors Loan Account in Xero account except where it is the only option (e.g. when using Xero Payroll). Instead, we suggest you add a credit card account and call it a Directors Loan Account. By doing this, it becomes much easier to add expenses directly to the Directors Loan Account in Xero, and transfer money to/from it and the company bank accounts. Here is how you set it up:

Click on Accounts, Bank Accounts, then Add Bank Account. Type into the bank search ‘Directors Loan Account’ it won’t find a bank called that so you can then click on Add it Anyway. Type ‘Directors Loan Account’ again in the Name, choose Account Type: Credit Card, then enter any 4 numbers for the credit card number. Finally click Save.

That’s it, you can now use your new Directors Loan Account from the Xero Dashboard to add your expenses (spend money) and record transfers (transfer money) to/from the Directors Loan Account in Xero.

Entering transactions in the Xero Directors Loan Account

It’s very easy to enter transactions to the Directors Loan Account in Xero when it is set up as described above. As with Wave, you need to ask yourself – has the transaction gone through a company account e.g. company bank account or company credit card which is recorded on Xero?

Company Transactions

If the transaction has gone through a company account, we are assuming that you have a bank feed set up or you have uploaded bank statements:

  1. Go to the bank account
  2. Click on Reconcile
  3. Find the transaction
  4. Click on Transfer
  5. Select the Directors Loan Account
  6. Edit the reference if it’s not clear
  7. Click on OK

Director Transactions

If the transaction has not gone through a company account, and there is no bill or sales invoice for it in Xero:

  1. Go to the Directors Loan Account in Xero
  2. Click on Manage or Manage Account
  3. Click Receive Money if the amount was received by the director
  4. Or click Spend Money if the amount was paid by the director
  5. Enter the details: to, date, description, amount
  6. Select the appropriate account – usually a Revenue or Expense account
  7. Click save

If the director paid or received a bill or sales invoice that’s already on Xero: Find the bill or sales invoice; go down to the section ‘make/receive a payment’; enter the details and select the Directors Loan Account; then click on Add Payment.

Checking the balance of the Xero Directors Loan Account

To check the balance of a Shareholder or Directors Loan Account in Xero, there are a few ways:

  • Go to the Dashboard or Bank Accounts and see the current balance of the Directors Loan Account
  • Go to Reports, All Reports, Balance Sheet, find the account
  • Go to Reports, All Reports Trial Balance, find the account
  • Go to Reports, Accounting Transactions, select the Directors Loan Account

Travel Expenses

The tax treatment of travel expenses can be surprisingly complicated. Here we explain what can you claim for travel expenses.

Cheap accountants

 

The starting point is that employees are entitled to tax free payments for a business journey. The employer can either pay the employee tax free for the cost incurred or the employee can claim for tax relief on any shortfall through their tax return.

The fact that an employee may have made a saving is irrelevant. So if the employee normally drives 10 miles from home to the office but is then required to drive 50 miles from home to a business client, the full 50 miles are claimable, not just the excess 40 miles. The rate of approved mileage allowance by HMRC for employees using their own cars for business travel is 45p per mile for the first 10,000 miles per year and 25p per mile thereafter. It should be noted that this mileage allowance rate includes a certain amount for fuel on which VAT can be reclaimed by the employer when backed with appropriate records.

If colleagues are in the same car for the same journey, you can claim an additional 5p per business mile per colleague.

 

Qualifying travel expenses

You can claim the cost of travel expenses incurred in the performance of your duties or travelling to or from a place you have to attend in the performance of your duties as long as your journey is not ordinary commuting between your home and your permanent workplace or private travel.

Therefore site based employees can claim the cost of travelling from home to site, although this is not allowed if the job at the site is EXPECTED to last for more than 24 months. If the position at site actually lasts longer than 24 months then they fail to qualify from the point at which they knew the 24 months would be exceeded. This should be distinguished from a permanent place of work which does not qualify at any time.

The subsistence expenses such as meals and accommodation in connection with this travel are also allowable. Car parking, toll fees and congestion charges are also allowable.

The fact that an employee may divert for a private purpose such as to do some shopping on the way home does not prevent it being a business journey if the primary purpose was business.

 

Permanent workplace(s)

A permanent workplace is usually the normal place where the employee goes to work although is actually defined as any place where an employee regularly attends in the course of their duties and which is not deemed to be of limited duration or for some other temporary purpose. It is possible to have two permanent workplaces and as a guide if more than 40% of your time is spent at the second workplace this can become a permanent workplace as well, although it is always necessary to look at the facts of the case. In some cases, spending less than this can also make it a permanent workplace.

 

Triangular Journeys

Where the employee travels from home to say a client and then to the office then the whole journey will qualify as business travel, which can be beneficial. However, it is important that the primary purpose of this is business and the work related diversion is not done just to claim the business journey.

 

Use of Home as Office

Aside from making claims for use of home of office, if the employees home can be classified as a permanent workplace on the facts then journeys to the head office should qualify as business journeys.

 

Record Keeping

Employers should keep records in support of all business travel expenses and subsistence expenses and where possible try to get dispensations for the amount of travel expenses paid agreed with HMRC.

 

How We Can Help You

We can advise you on the tax treatment of your travel expenses and subsistence expenses. Advice is included in our low monthly fixed fees.

Disclaimer