Directors Loan Account 09 April 2010

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Email Out: 09 April 2010
I refer to our meeting and would make the following points:
Car Cost
How are you going to remove the car account from both the fixed assets schedule and also from the balance sheet?
If the limited company paid for the car then the car must be withdrawn and not just ignored.
Credit the car account with the cost
Debit the directors loan account with the corresponding amount.
Credit motor expenses account with all motor expenses as detailed in the trading profit and loss account
Debit the directors loan account with the corresponding amount.
Use of Car
Debit: “use of car” account with business usage at the rate of 40p per mile for the first 10000 miles (there is an additional 5p. per mile if a passenger as well) and 25p thereafter. (Thus if (say) 20 000 business miles are completed then the claim admitted into the profit and loss account would be 10000 miles x 40p = £4000 + 5000 x 25p = £1 250 = £5 250 in total giving corporation tax relief at £5 250 x 21% = £1 102.50).
Credit: Directors loan account
If all the above transactions lead to a debit on the directors loan account then this must be repaid to the company by 9 months from the year end i.e. by 31 July 2009 less £5 000 (what you are allowed as an interest free loan from the business) otherwise the tax due (the total x 25%) is then added to the quantum of total corporation tax due (but in your case would be extinguished by the carry back of losses from the following year).
Please note that detailed records should always be diarised by the director of all business trips and summarised at least on a weekly basis.
(Note that with business usage there is no personal tax benefit on the director at the marginal rate of tax of 20%/40% nor class 1ANIC at 12.8% due on the company totalling many thousands of pounds).
You should always draw up two ordinary resolutions (these should always accompany major director loan transactions) one being for withdrawal of the car from the accounts and the second for business usage. These resolutions must be signed by the company secretary.

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