Private withdrawals and contributions in the bookkeeping

You fill up with the business card, you withdraw an amount for the mortgage, or you transfer money back because you expect a large invoice. That money is yours, but it does change your business: your equity falls or rises. Where you record it is exactly the difference between figures that reconcile and figures that do not.

What it is not

A private withdrawal is not an expense. If you recorded it as an expense, your profit would appear lower than it is — and you would pay too little tax. For the same reason a contribution is not turnover. Both are changes in your equity: you take something out or put something in.

How to process them

• •Record every withdrawal and contribution separately: date, amount and what it was for.
• •Record them on the equity item (capital or private), not in the profit and loss account.
• •If you pay something privately and use it for the business, that is a contribution in kind.
• •If you take goods from the business for private use, record that as a withdrawal at the purchase value.

In the annual accounts you see these changes back in the reconciliation of equity. That reconciliation is the best check on your entire bookkeeping.

What if you withdraw more than is in there

Then your equity becomes negative. That is allowed — it means you have taken more out of the business than has been built up — but it is a signal. A bank looks at it for financing, and it can point to bookkeeping in which withdrawals and expenses are mixed up.

What you put in the notes

The total of your withdrawals and contributions in the financial year. Not every card payment, but the sum per type. That way a reader can follow the reconciliation without you making your private spending public — in the filed document that is not necessary at all.

For a BV it works differently

A director-major shareholder cannot simply take private money out of the BV: that becomes a loan or a receivable (current account), with its own rules and tax consequences. Have that assessed by your accountant or tax adviser; it does not belong in this tool.