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How to explain startup cash?
When I set up my company, I transferred cash to its business account from my personal bank account.
How should I explain this on my transactions screen? As 'share capital introduced' or 'payment to director's loan account'? (And what is a director's loan account?)
How should I explain this on my transactions screen? As 'share capital introduced' or 'payment to director's loan account'? (And what is a director's loan account?)
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A tiny bit of this money - the cost of the shares you issued (which may only be £1) is Share Capital. The rest is a Director's Loan from you to the company.
You can read more about the HMRC definition of Directors' Loan Accounts here.
Essentially, you its possible to treat it as a current account of the money transferred between you and the company. It's possible to credit all salary, expense and dividend money from the company to this account for you to 'withdraw' into your own account when you want.
It's also possible to 'overdraw' the account by taking out more than you are owed, but there are specific rules about never going over £5000 overdrawn and repaying the money within certain timeframes.
To keep things clear and simple, in FreeAgent currently we have separate Salary, Expenses and Director's Loan accounts (you can see these as running totals on the Expense and Salary/Payroll pages, and on the Other Accounts section on the Home tab). We think this is easier to understand than a running Directors Loan current account, and doesn't muddy the waters about what's had tax paid on it (see that HMRC document for how complex this can get).
We do have the concept of 'Smart User Payments' which allocates money paid to you as, in order, Salary, Expense Repayment and Dividend. This allows you to minimise the declarations of dividends if the company still owes you salary and expenses. Almost the opposite of using the director loan account as a current account.
We're making a lot of changes to FreeAgent in the coming months to make this picture much clearer (the MyIncome tab will summarise all this).
We think this way works for the types of company we want to help, but we're always open to suggestions about how to make it simpler...
As always, talk to an accountant if you have any questions about your particular situation.
The company and 1 other person say
this answers the question
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Inappropriate?A tiny bit of this money - the cost of the shares you issued (which may only be £1) is Share Capital. The rest is a Director's Loan from you to the company.
You can read more about the HMRC definition of Directors' Loan Accounts here.
Essentially, you its possible to treat it as a current account of the money transferred between you and the company. It's possible to credit all salary, expense and dividend money from the company to this account for you to 'withdraw' into your own account when you want.
It's also possible to 'overdraw' the account by taking out more than you are owed, but there are specific rules about never going over £5000 overdrawn and repaying the money within certain timeframes.
To keep things clear and simple, in FreeAgent currently we have separate Salary, Expenses and Director's Loan accounts (you can see these as running totals on the Expense and Salary/Payroll pages, and on the Other Accounts section on the Home tab). We think this is easier to understand than a running Directors Loan current account, and doesn't muddy the waters about what's had tax paid on it (see that HMRC document for how complex this can get).
We do have the concept of 'Smart User Payments' which allocates money paid to you as, in order, Salary, Expense Repayment and Dividend. This allows you to minimise the declarations of dividends if the company still owes you salary and expenses. Almost the opposite of using the director loan account as a current account.
We're making a lot of changes to FreeAgent in the coming months to make this picture much clearer (the MyIncome tab will summarise all this).
We think this way works for the types of company we want to help, but we're always open to suggestions about how to make it simpler...
As always, talk to an accountant if you have any questions about your particular situation.
The company and 1 other person say
this answers the question
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Inappropriate?Ok, I think I understand. How then can I allocate £1 of the amount to Share Capital and the remainder to Director's Loan Account? The Edit A Bank Account Entry screen doesn't appear to allow one to assign parts of an amount to different reasons. -
Inappropriate?Just enter two separate entries.
If you're explaining an existing uploaded transaction, you can enter an explanation for the £1 Share Capital (edit the amount box to show £1 rather than the full transaction value).
When you've done that, you'll see the transaction is still unexplained, to the tune of the remaining amount. You can then go ahead and explain the rest as Director's Loan Account (this time the amount box will contain the remaining unexplained amount).
It's our way of splitting the transaction - there are two explanations.
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Inappropriate?Aha! Thank you.
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Inappropriate?Hmm, this was an existing uploaded transaction. I edited the amount to say £1, saved it, and the remainder has 'vanished'. I was expecting to see the remainder still unexplained but it has gone....
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Inappropriate?Oops -- my mistake. It was a manual entry. I'll be quiet now :)
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Inappropriate?How do I show the capital added by partners for a startup LLP? -
Inappropriate?Rich
The individual opening balances are accessed via the Home > People page.
Click on a person's row to edit the user details - the Capital opening balance is what you're after...
The opening balance, plus any changes from bank account entries and explanations you've entered, are shown on the Balance Sheet (Accounting > Balance Sheet).
We're making some improvements to the Income tab to summarise individual items like Capital Added etc. It's a few weeks off, but it should make it easier to visualise this type of stuff.
1 person says
this answers the question
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