using personal funds for business expenses

[Zuridis]

I run a contracting business and have had several items of business expenditure which I have paid for with cash of my own. These date back some several months and include payments made to labours as well as materials.

I also have several items of pre-trading expenditure prior to company formation. I'd like to sort this mess out. Would the best way to deal with this to invoice the company for the amounts incurred and withdraw payment from business a/c.

Would it be prudent to produce different invoices depending on the category of expenditure and itemize expenses.

I'm thinking for the more substantial items of pre-trade expenditure I might set up a directors loan a/c and deal with those expenditures separately?

Any advise would be greatly appreciated

[Richard231]

Expenses which you have paid on behalf of the company are just that - you have lent the company the cash to pay the expenses. The company therefore owes you the money back, and you can withdraw it to cover your original outlay.

If you still have the invoices / receipts then file them with your company purchase invoices, if not then make a note of what the expenses were so your accountant knows what has happened. Not sure if you are VAT registered - if so you can only (technically) claim the VAT on the original invoices.

Same goes for your pre-trading expenditure. you can claim as legitimate expenses any directly related cost (except for company formation) incurred upto (I think) 3(?) years prior to trading - I'm not 100% sure its that long actually.

Not sure how you keep your books, but I would set-up a Director's Loan Account nominal to post the expenses paid by you to. If this makes sense, the journals would be "CR DLA, DR Expense (or Fixed Assets) nominal" for the original event when you paid for the item, then "CR bank, DR DLA" when you pay yourself back from the company bank account. This way you are keeping a track of how much the company owes you personally, and can see instantly how much you can withdraw (tax free!!)

[Zuridis]

Thanks alot Richard- the journal entries are clear to me. Should I still have director invoice company with expense items that he paid for detailed in invoice prior to paying director back from bank A/C. Thanks alot!

[RAL]

Thanks alot Richard- the journal entries are clear to me. Should I still have director invoice company with expense items that he paid for detailed in invoice prior to paying director back from bank A/C. Thanks alot!

Director do not need to invoice the company for the expenses he paid. Instead he can claim the expenses for which he paid for via submitting expense form. Then reimburse the amount to the director.

Some of these expenses may need to be reported on P11D if you do not have dispensation in place. Items such as stationery, postage etc do not need to be reported on P11D.