Getting paid is important, but the way payments are made is equally as important. Your company records must reflect correctly the way that directors, employees and shareholders have received money.
There are three ways that directors, employees and shareholders will normally receive payments from a company day to day; salary, dividends and expenses. inniAccounts will help ensure your records for each of these are accurate.
Following the right procedures
It is important that you follow the correct procedures before paying yourself. A simple rule to follow before making payments from your company is to record the action in inniAccounts first. Getting it wrong can result in HMRC determining that additional tax must be paid.
We want to make sure you don’t have any surprise tax bills and that your record keeping is kept as simple as possible. Our accountants top tips are:
- Don’t draw cash from your business account – use your own personal money to pay for cash expenses then record them as out of pocket expenses
- Don’t pay yourself any salary or dividends without first recording it in inniAccounts
- Don’t draw arbitrary sums of money with a view to sorting it out at a later date
- Don’t pay for personal items or expenses from your business account
Salary payments to directors and employees
Each month you will probably pay salaries to your company directors and if you have any, your employees. Before paying salaries your automated payroll in inniAccounts must create and submit the payslips to HMRC.
When HMRC have confirmed to us that they have accepted your payslips we will let you know in an email and you’ll see a message on your dashboard. You can then make the salary payments from your business bank account to the personal accounts of directors and employees.
Dividends (payment of company profits)
When your company has sufficient profits you might decide to pay your shareholders a dividend. For dividends to be formally recorded they must be documented with dividend vouchers and minutes of a meeting before any payments are made.
There are no rules on how often dividends can be paid provided the company has sufficient profits. To check the available profits within your company, first ensure your records are up to date including your bookkeeping, then follow the steps to create a dividend. The software will display what profits are available to help you decide what dividends to pay.
Out of pocket business expenses
Although not a form of income, you or your employees may occasionally pay for business expenses using personal money. Your company will need to reimburse the expenses to you or your employee so no-one is left out of pocket.
It is recommended that business expenses are paid for using a business debit card whenever possible. This helps ensure your record keeping is kept as simple as possible to save you time.
If an expense is paid for in cash or if your employee doesn’t have a business debit card, the expenses need to be recorded in the expense section of inniAccounts. This allows automatic handling of reimbursement of the out of pocket expenses through the next payslip or directly via a bank transfer.
A personal vehicle might also be used for business use. On these occasions the business related mileage in a personal vehicle needs to be recorded in the mileage log. Again, this allows automatic handling of the reimbursement of the business expense from the company to yourself or employees.
Recording all expenses ensures that the correct tax treatment can be applied and hence reduce your tax bills.