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bigduckontax, Accountant
Category: Tax
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Hello there I have a company with a year end 31.12.2013. This

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Hello there
I have a company with a year end 31.12.2013.
This is my first year of preparing them...I have their trial balance, in which there is a DLA overdrawn by say £45k....
there is sufficient profit to clear this.
How do I do it and what would be the postings please??
NO dividends have been declared through the year....
Many thanks.
Hello, I'm Keith and happy to help you with your question.
Just to make it quite clear that we are on the same wavelength please advise if by an overdrawn DLA you mean that directors have been loaned 45K by the company?
Customer: replied 3 years ago.

Hello Keith


that is right- they have in effect being drawing money and posting it to the DLA

This can have horrendous consequences from a taxation point if it goes over the year end. The directors should clear their DLA before the company year end. This could be done by declaring dividends to clear the DLA. However, this has Corporation Tax (CT) consequences also as dividends do not count against a company's profit and loss account for CT purposes. Better that the payment be made my paying them a salary, but that will involve the company in registering for PAYE and making appropriate tax and NI deductions. Those, along with the employer's element of NI, are allowable against profits for CT purposes.
Depending which was you wish the cat to jump reflects on the book keeping. However, assuming that the DLA is to be cleared proceed as follows:
Debit Suspense Credit DLA.
If the salary route is taken Debit Wages etc [these will have to be split for PAYE accounting] Credit Suspense.
If the Dividend Route is choaen then:
Debit Dividends Credit Suspense.
I do hope I have been able to point you in the correct direction. Please don't hesitate to come back to me should you require more edification.
Customer: replied 3 years ago.

Its a dreadful mess really...this is only one of the problems and I am relatively new to this game.

However, they have taken salaries so it will have to be dividends.

What wil happen to it once it goes to suspense and will the HMRC not query this?

Could it not go as a final dividend and be paid from retained profts?

The company would not physically pay the dividend, it would offset the DLA as a book keeping transaction. This should be done before the year end accounts are closed. I only put the transactions through a suspense ledger heading for convenience.
Yes, I have told you that you could clear the DLA by means of dividends, but dividends do not count against the P & L for CT so the CT liabililty will be inflated.
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