A limited company is, legally, a separate entity from the directors. It has its own bank account, any purchases of assets and loans for the company must be taken in the company name. As such, ideally, any expenses incurred by the company for business use should go against the company bank, and the directors should make any personal expenses out of their own pocket. Even though this can be followed strictly, there may be a situation where you are forced to use the company card, such as a case where the personal bank card had been left at home by accident. In this case, a loan from the company to the director is created.Any items paid for a director’s personal expense from the business creates a Director’s Loan. This loan’s transactions are reflected in the bookkeeping and annual accounts as a liability. A direct transfer from the company bank account to the director as a top up on their personal account will also count as a loan to the director.Business claims, such as the use of home as office or mileage, can be claimed from the director to reduce the loan they owe. If any businesses expenses are purchased through a director’s personal account or cash, then this will also decrease the loan. Declared dividends will also bring the loan down, but the director must bear in mind that any dividends over £2,000 would need to be taxed at 7.5% at the basic rate.
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