It may sound cliche, but as an entrepreneur you should be careful to separate company money from your own money more than you think. Because what really happens if you’re going to privately use company money? Sanja Skiljo, chief operating officer and accounting consultant at the digital accounting service Wint, explains what applies.
There are a number of laws and regulations that govern how you can and should use company money. And fortunately, because it sure can sometimes seem like there is a fine line between what you can allow the company to pay and what it should be financing out of your own pocket?
Sanja Skiljo is Operations Manager and Accounting Consultant on Automation Wint accounting service She closely monitors what rules apply and what can happen if she makes a mistake.
Everyone pays for themselves
The accounting law is clear that all company events – income and expenses – must be booked so that there is always a balance. When the company buys something, the money should disappear from the bank account, the corresponding amount should be booked as an expense and what was purchased should be entered into the accounting as a purchase, says Sanga.
If you are not keen on separating company money from the private economy, over time it can become difficult to determine who pays for what. If you don’t part, it simply complicates the accountability, which may be illegal at worst, she continues.
Forbidden loan – What happens if I don’t keep the money separate?
Since it is important to be clear about what company funds are and what is yours, there are rules for what type of withdrawals and transfers are allowed in a limited company. These rules are in place to protect the company’s capital and to prevent the consumption of non-taxable money.
These rules state that limited companies are prohibited from lending money to their shareholders, as well as any person belonging to the so-called “prohibited circuit,” meaning board members, chief executives, shareholders and their relatives.
– If a limited company still has to loan money to one of these people, then a debt for the company arises from the person who acquired the money, which is classified as a foreclosed loan. If something like this is discovered in an annual report, it could lead to an investigation into economic crimes and, in the worst case, a prison sentence, Sanga warns and continues:
Therefore, it is extremely important that you do not pay money to yourself, or to anyone else in the prohibited circuit, as an entrepreneur, unless it is in the form of salary, profits, recovery of special expenses or property rights that you have placed in the company.
The company can pay for some private purchases
It is important not to pay himself anymore. But how does this go with the purchase of goods and services afterward? Can I let the company bear some of my own costs? As a general rule, the answer to this question is no – at least if you want to avoid preferential taxes. Sanja develops:
What you buy with company money should be used primarily by and within the company. This means that you cannot allow the company to fully incur a private cost, whatever it may be. On the other hand, you can of course, for example, use a corporate car that your company privately funds, as long as you are also taxed for the benefits you get, she says.
Thus, it is possible to allow the company to pay certain costs, but in this case it must be taxed on its benefits, which means in the long run that you as a private person will be responsible for the cost in any case.
Benefit Taxes – How Do They Work?
There are benefits taxes to make it costly for you as a private person to allow the company to pay something as if you had been paid and bought the same for private money, says Sanja.
If you are an employee (and you think you run AB), it is the employer (that is, your company) who pays tax to the Swedish Tax Agency. The benefit is recorded in your salary specification, which in turn increases the withholding tax on your pay.
However, Sanja suggests that there are a few private costs the company can cover without having to pay benefits, such as health, a fixed-subscription mobile phone, and some tech products that can be used privately, for work and education.
As long as all employees in the company receive the same offer, you can, for example, offer a tax-free fitness allowance of up to SEK 5,000 per year, which in practice means that the company can fund sports cards for all employees. Assuming the annual cost is a maximum of 5,000 SEK, Sanja says.
But the rule of thumb is still that you must pay for private purchases as a private person, while the company’s money should be used to cover the company’s costs. It concluded that this will make it easier to maintain correct accounting and ensure that you as an entrepreneur always stay on the right side of the law.