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TaxVince
TaxVince, Accountant
Category: UK Tax
Satisfied Customers: 961
Experience:  Chartered Accountant >20 years + Qualified IFA
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Hi TaxVince. I recently spent €1000 on business related products/services.

Customer Question

Hi TaxVince. I recently spent €1000 on business related products/services. When I record the transactions in the books, should I debit the Shareholder Loan account and Credit the Cash In Hand Account? Thanks in Advance
Submitted: 9 months ago.
Category: UK Tax
Expert:  TaxVince replied 9 months ago.

TaxVince :

Hi. Thanks for your question. Should you find the answer below incomplete or you are not fully answered, please drop a reply before rating.

TaxVince :

Did you use your own cash?

TaxVince :

And not the business account?

Customer:

Its a start up company. The Company does not generate any income at present

Customer:

My business partner is designing the website. How can we record this in the books as the website owned by the Company therefore it increase its value.

TaxVince :

Ok. So i assume you are paying these from personal account.

Customer:

Yep. Personal Cash

TaxVince :

The way to record this is in the books of the business is: Debit the expense Credit Shareholder acccount.

Customer:

and how can we record the design work?

TaxVince :

When the company makes cash one day and you can arrange for the cash to be settled to you as the company owes you money then you will post this in the company accounts: Debit Shareholder account Credit Cash.

Customer:

Great.

TaxVince :

Depending on the figures and your accounting policies - the general tendency is to expense the website design costs as shown above. However you can capitalise the costs and write off over the years should you want to have the website as an asset on your books by: Debiting Website costs Cr Shareholder funds

TaxVince :

Let me know if you are answered?

Customer:

I spoke with the Revenue Commissioners about this and they said all we need to do is to clearly record the time we invested to create the website and in case of an audit we need to show them the log.

Customer:

Bear that in mind there is a lot of programming involved and the 3 websites will be designed and programmed. The cost could run up to €10K

TaxVince :

I see. Yes the tax office are right to ensure you keep good record of the costs involved like any other accounting transaction you are required to keep record of the costs upto at least 5 years or so.


 


There are two issues here - accounting and tax. From accounting point of view, your accounting policies determine whether to capitalise the website costs or expense them. Most people tend to follow simple accounting policies like anything above £5k then capitalise as an asset. If its a simple company/business that doesnt need to be audited you have a free reign of what you want to capitalise.

Customer:

We are going to tender for government contracts so I think it would be better if we capitalise the cost of the website.

Customer:

How should I record that in the books.

Customer:

We dont want the company to pay back the cost of the website

Customer:

However we might increase dividend payouts to recover some of the money "invested"

TaxVince :

You might as well capitalise the costs then.

If you dont want to record this as shareholder loan then you can treat this as additional capital: Debit ASSET (website) Credit Share Premium/whatever capital account you create.

You should that generally share capital cannot be distributed.


TaxVince :

From tax percepective, you can claim back any legitimate pre-trading expenses, according to s.61 of The Corporation Tax Act 2009. These expenses are treated as if they were incurred on the first day the company went live. Even if you capitalise the costs, website costs normally fall within the intangible assets regime, not the capital allowances regime. That means the tax treatment should follow the accounting treatment. However you could also get capital allowances if you capitalise the assets in your accounting treatment. Therefore in any case you should be able to get a tax deduction for the costs incurred on the website either as an expense deduction or capital allowance.

Customer:

Many Thanks for your advice Vince.

TaxVince, Accountant
Category: UK Tax
Satisfied Customers: 961
Experience: Chartered Accountant >20 years + Qualified IFA
TaxVince and 2 other UK Tax Specialists are ready to help you
Customer: replied 9 months ago.

Assets


























AccountBalance
Fixed Asset
Other Intangible Assets5,000.00
Total for Fixed Asset5,000.00
Total Assets5,000.00

Liabilities








































AccountBalance
Current Liability
Shareholder Loan1,006.06
Total for Current Liability1,006.06
Non-Current Liability
Share Premium5,000.00
Total for Non-Current Liability5,000.00
Total Liabilities6,006.06

Equity






























AccountBalance
Previous Year(s) Earnings0.00
Current Year Earnings(1,006.06)
Total equity(1,006.06)
Total Liabilities and Equity5,000.00
Customer: replied 9 months ago.

Did I record the transactions correctly?

Expert:  TaxVince replied 9 months ago.
Looks ok though you should move Share premium Equity section.

I would also suggest , since you seem to have a number of accounting issues to deal with and these also have tax and distribution implications, i would suggest hiring an account who will assist you in doing this even if the company is a start up. Sites like UKtaxadvisors.com ; or Find-Accountants.com; Servicestas etc could get you an accountant for a fee of £200 per year. Or simple google for one.
Customer: replied 9 months ago.

What you mean I should move share premium equity section? I debited the asset (website - intangible) and credited share premium account as you said.

Expert:  TaxVince replied 9 months ago.
Yes that is right. All im saying is on the balance sheet the Share premium account forms part of Equity. This is a presentation issue and not to worry about. This also depends with whether you are using an accounting package or just excel. Your balance sheeet would look like this::

Total Assets - £5,0000

Liabilities - £1,006
Equity - ££3,996 ( ie £5,000 - £1,006)
Total Equity and Liability £5,000
Customer: replied 9 months ago.

I am using https://www.waveapps.com/ free accounting tool.

Expert:  TaxVince replied 9 months ago.
ok thanks

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