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.

 

 

In this post we’ll explain how to do a VAT return in Wave Accounting.

What is this free Wave Accounting?

Wave provide good free online accounting software. It’s paid for by small adverts at the side of the screen that you’ll hardly notice. Wave Accounting is a Canadian company who have built free accounting software mainly for Canada and the USA. But it can also be used in the UK and you can certainly work out what should go onto a VAT return in Wave. AS explained below, on anything other than the normal VAT scheme, you will need to adjust what is shown on the VAT return in Wave.

Accounting for VAT in Wave

VAT is a sales tax and that’s what it’s called in Wave Accounting. You’ll first need to set up your VAT rates by going to Settings (cog button), Sales Taxes, then Add a Sales Tax. See the image below for the settings you’ll need for the standard UK VAT rate at the time of publishing this post.

You may also need to set up other rates for your VAT return in Wave such as zero rate (0%) and the EC Reverse Charge rate which is explained below. Once you’ve set up the rates of VAT in Wave, you can then start adding or claiming VAT in Wave as follows:

Sales invoice and Bill: once you add a line to a sales invoice or bill in Wave, simply select the appropriate VAT rate. Wave will work out the VAT for you based on the percentage entered.

Transactions: add or select the income or expense in Transactions, then click on show details. The Taxes box will appear so you can select the appropriate VAT rate as shown below.

Running a Report for your VAT Return in Wave

The report you’ll need to do your VAT Return in Wave is the Sales Tax report. Just select the start and end dates for the period that your VAT return needs to cover then click on Update. Any transactions on which a VAT rate has been selected will appear in the report. The report is separated into a section for each VAT rate.

The summary report shows the totals and the audit report shows every transaction. The Payable columns are for income and sales (excluding VAT) and VAT on income and sales. The Receivable columns are for expenses and bills (excluding VAT) and VAT on expenses and bills. Then the difference between the two VAT amounts is the net VAT payable or receivable.

Normal Accruals VAT Return in Wave

The normal accrual basis VAT scheme is where you calculate and pay/claim VAT at 20% based on the date your customers are invoiced or the date you are billed. If you are on the normal accrual basis VAT scheme, you can use the VAT Return in Wave as it is.

Normal Cash VAT Return in Wave

The normal cash basis VAT scheme is where you calculate and pay/claim VAT at 20% based on the date your customers pay you or the date you pay suppliers. If you are on the normal cash basis VAT scheme, you need to adjust your VAT Return in Wave. The adjustments are shown below. You’ll need the Aged Receivables and Aged Payables reports both at the start and the end date of the VAT period.

Flat Rate Accruals VAT Return in Wave

Currently, calculating flat rate VAT in Wave isn’t possible. But you can easily find the VAT inclusive income amount you need by running a Sales Tax Report and adding the Payable amounts for before tax (net) and tax (VAT). Don’t forget that all income needs to be included in the flat rate scheme calculation, so you may want to use a ‘Zero’ rate or a ‘No VAT’ rate on income where VAT isn’t charged so that it appears in the report. Once you have your total VAT-inclusive income, just apply your flat rate percentage to calculate the VAT payable.

Flat Rate Cash VAT Return in Wave

Use the same workings for sales as shown above in Normal Cash VAT Return in Wave. Then add the net and VAT amounts, then apply your flat rate percentage to calculate the VAT payable.

Submitting your VAT Return

Currently, you can’t submit your VAT Return in Wave. So just like some other leading software, you have to log into your HMRC account and enter the amounts manually.

We can do your VAT Return in Wave for you

Our Quarterly package from just £40 plus VAT per month includes VAT returns as well as Accounts, Tax Returns, Management Accounts and general support and advice. Contact us for more details.


Wave Online Accounting is free cloud accounting software that you can use to easily do your bookkeeping and invite your online accountant to log in and use your bookkeeping to do your accounts and tax returns. We have more pages about Wave Online Accounting here.

Wave Online Accounting still doesn’t have a credit note facility yet, but there is a workaround to post and allocate credit notes on Wave.

To post a credit note on Wave, you have to create a new invoice with negative amounts.

Then to allocate the credit note against the invoice, you need to create a positive income transaction and a negative income transaction in the bank account. Both amounts need to be for the total credit value, so that they offset each other in the bank account and don’t change the bank balance. Then you need to allocate the positive receipt against the invoice, and the negative receipt against the credit note.

That’s it!

CloudBook Online Accountants are Wave Online Accounting specialists. So if you need more help with Wave’s free online accounting software, come back to view our helpsheets, or sign up for one of our low-cost fixed fee accounts packages which includes support with Wave or other online accounting software throughout the year.

UK Bank Feeds and MTD

Wave accounting no longer supports UK bank feeds or Making Tax Digital (MTD) returns. For software that does support these things, try Pandle. We will help you with any online accounting software.