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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3825
Experience:  FCCA FCMA CGMA ACIS
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I set up a limited company on 2/3/15 to do locum work (I'm a

Customer Question

Hello, I set up a limited company on 2/3/15 to do locum work (I'm a junior doctor) in my spare time - I had approx £8000 revenue and approx £2000 expenses (course fees, indemnity insurance etc) for the year to 31/3/16.
I was transferring money from the business account to my current account to pay for things, so at year end the bank account balance was £0. I have had conflicting advice from the person doing my accounts.
How should I record this in my accounts? Should this be recorded as a directors loan, and announce a dividend in the year 2016/17, or should I have treated this as dividends in 2015/16?
Do you have any advice regarding this?
I also have some query regarding expenses
i) I was advised I can expense a portion of my accommodation - I own a 3 bedroom house and use 1 room as my work office. I haven't included this is my accounts - should I?
ii) I purchased a laptop for the business (£1800) - how should I treat this? Can I expense it, or should I treat is as an asset and depreciate it?
Submitted: 8 months ago.
Category: Tax
Expert:  bigduckontax replied 8 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

I assume that the money's you were transferring were not for expenditure on the company's behalf, but for your own personal use?

Please advise so that I can assist you further.

Customer: replied 8 months ago.
Mostly for my personal use - occasionally to pay for courses etc, but probably safer to assume for personal use
Expert:  bigduckontax replied 8 months ago.

Right, there are a number of points to consider here. Expenditure on courses to enhance existing skills of an employee can be passed through the company's trading account. Courses to acquire new skills cannot be set against Corporation Tax (CT). As a director you are an employee per se so paying for courses is acceptable. However any payments made to you by way of salary must be made through PAYE channels.

You can use one bedroom of your house for business purposes and charge the company, just make sure that it is available as a bedroom also ie have a bed in it!

Your laptop is classified as an item of plant and machinery, the definition is extremely wide, and is a Capital Allowance (CA) item. The company will be entitled to the Annual Investment Allowance (AIA) within the CA regime and this is at 100%. You thus write off the full cost of the PC against the company's profits in the year of purchase. CT computations do not recognise depreciation although traditional accounting does.

Now presumably you are left with some moneys which have not been absorbed by the company yet passed to you, presumably as dividends. Dividends do not count against a company's CT computation so any profit left in the trading account will be taxed at the CT rate of 20%. On the other side of the coin dividends up to 5K in your hands are free of Income Tax (IT) from the 16/17 tax year. However, HMRC will almost certainly invoke IR35 and insist that these payments are in reality salary and taxable at your marginal rate.

There you are a quick gallop through company accounting and taxation. Confused, you will be! If you have any further queries please follow up on this thread.

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