Know About Director's Loan Account and Overseas Expenses Claims According to DNS Accountants

When an individual is associated with a company in the capacity of a director, then there are certain things that come along with it. The individual becomes responsible for the ideological as well as the financial approach of the company. The concept of ownership is not of value to her, but the concept of accountability is.

​​Being a director gives you a certain level of freehand over the way the company finances are to be managed. But at the same time, this freehand doesn’t mean that you are not accountable for whatever steps you take in this regard. Every transaction made in the capacity of the director is under scrutiny as well as analysis and is also recorded for future reference.

What is Director’s loan account?

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Sumit Agarwal, Founder & Managing Partner

A director’s loan account is a great way of creating a relevant record about the way things work out while managing the finances of the company. This is important as whatever funds are there in the name of the company are the property of the stakeholders and the investors. Therefore, it is essential that any decisions taken about the use of those funds be recorded. This is a manner of creating accountability for the authorities as well as the relevant stakeholders.
The director’ account is not a physical account, but a virtual entity that is used as a measure to record of the company finances to and fro to the directors. This is a record of whatever money any director puts into the company at the time of need and also takes into consideration if any loans have been credited to the director from the company finances. Let us elaborate a bit more on this.

  • Putting money into the company: The company might require certain monetary input in the times of need and also at the times of financial crunches. Usually, the directors are the first to provide this monetary support. The director’s loan account puts this invested money as owed to the director. This acts as a measure to compartmentalize the finances. It has also been observed that at times, the company directors choose not to take salaries when the company is struggling with the money flow. These salary amounts also come in the credit amount from the director to the company. These credits work almost exactly like any other crediting. One can choose to request repayment of the same if the company has enough finances to honor that claim.
  • Taking money out of the company: The company directors lead the closely knit financial system of the company. This is the reason for them enjoying a certain level of trust amongst the other stakeholders. This trust enables them to use the surplus company finances if they require it. This is a very prevalent practice amongst the directors.

Usually, the directors take up the money from the company accounts when they need it and make sure to settle the amount by the end of the year. This way they enjoy a certain level of exclusive privileges over the company resources in response to their services.

While this allows the company directors to use the amount, the amount is properly mentioned in the director’s loan account as a credit in favor of the company. They are accountable for this amount, and it has to be recovered timely.

The directors’ loan account also makes sure to record the transactions made by the close family members of the directors, who have authority to handle the company finances. It is particularly important in the family run businesses. This gives a decisive layer of transparency to the system, and the accountability reduces the risk factor of the money being used for the personal purposes.

The biggest advantage for the directors to take a loan in this way is that they do not have to pay any taxes on the amount owed to the company if they manage to settle the account within 9 months and 1 day after taking the loan.

It should also be noted that the directors can take the loan without taxation only to the amount that can be paid back using their annual dividends. Any loans over that, or any loans left unpaid after 9 months and 1 day, then the loan amount would be required to mention on the corporate tax return, and the company will end up paying the tax on the same.

The loaning to the directors is a major way of managing the time gaps between money inflow and taxable dates of dividends. Withdrawing the dividends is subject to several high rated taxations, but if the director is assured of being able to pay back the amount within the stipulated time of tax-free loaning, then they can easily avail them from the company and then pay it back later before the taxation period kicks in.

Overseas expenses claims

Ion the time of global outreach for the business, it is imperative that various officers and professionals from a business are required to travel overseas in order to do negotiations as well as help in the expansion of the business.

Usually, these trips are fully sponsored by the companies, as they are meant for the purpose of the business and shouldn’t put any financial pressure on the workers. In addition to this, the business can also avail the tax benefits on the amount spent in the foreign trips meant for business. These tax benefits are subject to the fact that the trip is exclusively meant for the work purpose and the expenses mentioned in the tax benefit documentation too are exclusively the part of work.

HMRC makes sure to check for the authenticity of your claim, and it has put in various measures to check and verify the various documents as well as other details to authenticate the claim. It goes without saying that your claim would be rejected if you fail to provide the relevant documents of the travel expenses in the form of legal receipts and other relevant details.

This also needs to be considered that HMRC can levy heavy penalties if they find that your claim was fraudulent. Therefore, it is important to put all the relevant documentations in the array before option for the tax benefits under this. HMRC also has a policy that allows the individuals to avail flat rate allowances when traveling to the foreign countries. This allows the individuals to avail the tax benefits without having to produce all the receipts. The only important filter here is that the legitimacy of the trip as the business trip has to be established without fail.

There are also provisions to avail tax benefits over overseas expenses done for short term travel to foreign countries in a matter of training or study. This means that there are enough incentives in place to avail tax benefits if the person is thoroughly aware.

Source: DNS Accountants

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