Extension Next September Please advise

Hi

I have entrepreneur extension next year September 2016 and have following questions in my mind. Can anyone please clarify if I have calculated right investment made so far.

Investment details:
Ist accounting year 2014: 27,000/-
2nd accounting year 2015: 13,000/-
Total investment so far: 40,000/-

However, I withdraw salary in

Ist accounting year 2014 : 3,000/-
2nd accounting year 2015: 6,000/-

Dividend

Ist accounting year 2014 : Nil
2nd accounting year 2015: 6,000/-

Total salary and dividend so far : 15,000/-

Does this mean I have made investment of £25,000(40,000-15,000). Correct me if I'm wrong.

Also company has made profit in Ist and 2nd year 950/- and 12,000/- respectively.

Hoping to have reply from gurus.

I have split your post to its own topic as where you posted is NOT a 'general, all to post' topic. It is considered rude to just 'tag on' to another members thread with your query and it creates confusion when members respond.

I am not sure how HO will view this but this is my view:

1st year: Invested 27K, made £950, withdraw £3000, Total invested £24,950
2nd year: invested 13K, made £12,000, withdraw £12,000, Total invested £13,000

Total invested so far £37,950

You can get salary and dividend from the additional revenue not from your investment. If you check the company annual accounts, in balance sheet you will have your director loan (DL), fixed assets (FA), Debtors (D), Cash in bank at end of year (CB) and Creditors (C).

What home office does is they check the DL and compare it Current assets (CA) and FA.
The formula for this is TA + D+ CB - C = DL
Now here DL can be a bit high or low which will be due on annual depreciation but that will be just a nominal proportion.

As long as these figures are matching there is no issue if DL is above £50000, otherwise it is better to invest more if you have taken more from the company.
I hope this will help.

Hi Zimba,
You have included profit of both years in the investment. I am not sure if we can do this. Otherwise everyone would consider year end net profit as investment.

I am still confused and don’t know the exact figure of investment required to meet 50K target.

Gurus please throw some light on this issue. Thanks

Hi Awan905,
Thanks for your comments. However I am still confused how HO use this formula to calculate Director loan.
I have checked my company’s first year accounts balance sheet. It shows
Director loan (DL): 27000/-
Fixed Assets (FA): 362/-
Debtors: 802/-
Cash in Bank at the end of year(CB): 27500/-
Creditors falling within year ( C ): 714/-

According to Formula you mentioned
TA+D+CB-C = DL
362+802+27500-714 = 27000
27950= 27000
It is not equal to Director Loan but showing difference of 950/- which is profit of the first year.

Also do you mean to say salary/dividend cannot be withdrawn from company if full investment has not been made yet even though company is in profit?

Could you please correct me if I am wrong.

nasir_skp wrote:Hi Zimba,
You have included profit of both years in the investment. I am not sure if we can do this. Otherwise everyone would consider year end net profit as investment.

I am still confused and don’t know the exact figure of investment required to meet 50K target.

Gurus please throw some light on this issue. Thanks

I did that for the first year only, my mistake. Remove £950 from the first year invested. The bottom line is that you CANNOT pay more than your earn to yourself (imaging you have no expenses).

If you expenses are more than your turnover, you should not pay yourself ANY salary.
If you expenses are less than your turnover, your salary can be the difference.

So it means Salary taken while Business was in loss(expenses more than turnover) should be reinvested as DL CLEAR,to be on the safe side.

Salary taken while business is in profit(expenses less than turnover) should be fine as long as it is equal or less than the difference (Turnover-Expenses) or in other words Profit.

Am I right Zimba and others?

Yes, when your expenses are more than turn over, any salary paid would come from cash in the bank which in your case is your investment