Directors loans - lending your company money

What's a directors loan account?

Imagine it as a virtual pot of money. If a director lends their company money, details of the money loaned is recorded in the loan account. When the money is paid back, the loan account is cleared.

If a director borrows money from a company, that is also recorded on the loan account. 

Recording money lent to your company

An easy mistake when recording a loan is to use the ‘Enter New Transaction’ and then ‘Enter other income’. The problem with this is that this type of income gets recorded against your sales and your sales are what your tax calculations are based on. Using a director’s loan ensures that no tax is paid on the money when it enters and leaves your company.

Once you’ve decided how much you are going to loan your company, you then transfer the money from your personal bank account to your business bank account. You then record the transaction in your bookkeeping against your Directors Loan account as a credit using these steps:

1. Credit your director’s loan account

1. In your bookkeeping screen, select the director’s loan account

2. Click ‘Enter New Transaction’ then select ‘Transfer to another account’

3. Enter the date, description, amount, and select transfer to Business Bank Account. If for example you are lending your company £1,000, enter this as a positive amount

4. Check the matched box and then press Save

This will now show a balance of -£1,000 on your director’s loan statement which indicates that your company owes you money.

2. Update your business bank account

1. Select your Business Account from your bookkeeping screen

2. Locate the transaction for the director’s loan (in this example £1,000)

3. Edit the transaction and check the box to confirm it matches your bank statement (date and amount) 

4. Save the transaction

You have now successfully loaned your company money and recorded it in your director’s loan account. This is reflected on your accounts and your LiveCash.

Recording the repayment of your loan 

When you company has adequate cash to repay the loan, the reverse of the previous actions needs to be taken to clear your director’s loan account.

1. Debit your director’s loan account

1. In the bookkeeping screen, select the Business Bank Account

2. Click 'Enter New Transaction' then 'Transfer to another account'

3. Enter the date, description, amount, and select transfer to Directors Loan account

4. Save the transaction

This will show on your business bank statement in Provestor as £1,000 paid out in this example. You can now pay the money from your business account to your personal account and mark that transaction as matched. 

2. Update your directors loan account

1. Select your directors' loan account from your bookkeeping screen

2. Locate the transaction for the loan repayment

3. Edit the transaction and check the box to confirm it

4. Save the transaction

If the full balance of the loan has been paid, the balance of the director’s loan will equal zero.