All director’s loan account, as the name suggests means a loan That the owner of the company gets. It can also be given to a family member or a spouse. Loon means something that isn’t a salary or a dividend. It shouldn’t be the capital contributed by the director as well. A loan account is independent of every other type of payment and it is just referred to as the money borrowed by someone from the company.
It is important that the company keeps track of all such records. When it comes to disclosing accounts to the authorities, such records should be in the books of accounts. Directors’ personal expenses should be regulated and checked from time to time so that no record is missing when it comes to final disclosure. As a director, you need to include all the details of the money that you owe the company or vice versa.
Features of a company
When you compare sole proprietorship to a limited company, in the latter case, the company is recognized as a separate legal entity. The company’s profit should be used for the company itself rather than for personal use. However, you might ask what is the profit the director can take. This is where directors’ loan account in debit comes into the picture. The owner can take money from the company in two ways. The first is dividends and the second is wages. The owner can keep his salary as much as he wants.
Debit and credit balance
As the name suggests, only the director can take a loan from the company. If you are at any other position, the terms and conditions will be decided by the director. Borrowing money from one’s own limited company should be a free transaction. However, it is not. Financing personal expenses like big purchases or house deposits mean you need to record such transactions otherwise you are liable to pay huge fines.
Directors loan account in debit
The director’s loan account in debit means that the director has taken a loan from the company. The tax payments might depend on the repayment scheme. If the Director gets a loan from the company at an interest rate lower than the industry, it should be recorded as a discounted interest under the category benefit in kind. Officially, the owner should pay the tax difference that is present between the paid rate and the industry rate.
Directors loan account in credit
A director’s loan account in credit means that the owner has given a loan to the business. The company has to pay interest on this capital invested. This amount has to be treated as business expenses of the company and a personal income of the director. When the director files the tax return, it should be reported as personal income.
any amount that the company earns or the director earns, needs to be subjected to tax payment. The tax responsibilities also depend upon whether the director has his loan account in credit or debit.