My client is using his personal credit card to pay for expenses of his company. The personal credit card is also used for personal expenses. He then uses the business bank account to make ad hoc payments off the credit card balance. These ad hoc payments have exceeded the value of business expenses he has purchased in his financial year. Is the overpayment an advance towards future expenses that should be shown as such at year end, or should this overpayment be treated as a dividend in the final accounts?

Arthur Weller replies:
In essence, this man is overdrawing his director’s loan account and repaying it later. HMRC will consider that this is a beneficial loan. However, there is a threshold of £10,000 below which the official rate of interest benefit is not applied. Additionally, where a director or employee receives an advance for expenses necessarily incurred in performing his duties, the advance is not treated as a loan, provided that: (a) the maximum amount advanced at any one time does not exceed £1,000; (b) the advances are spent within six months; and (c) the director or employee accounts to the company at regular intervals for the expenditure.