How to explain capital introduced into a business

This article describes how to explain money paid into a business by an owner, partner or limited company director as capital introduced.

Once the relevant bank transaction has been imported into your FreeAgent account via a bank feed or uploaded from a bank statement, you will need to explain it using the appropriate ‘Type’ and ‘Category’ as detailed below. You’ll see different options depending on whether you have a sole trader, partnership, LLP, unincorporated landlord or limited company account type in FreeAgent.

Please note that you need to have level 6 access or above to your FreeAgent account to explain bank transactions.

For information on explaining capital taken out of the business, please see this article.

1. Navigate to the relevant transaction

Navigate to the 'Banking' tab at the top of the screen and select 'Bank Accounts' from the drop-down menu.

Bank Accounts.png

Choose the relevant bank account from the list.


Select the transaction that you would like to explain.


2. Choose ‘Money Received from User’ as the transaction ‘Type

Select ‘Money Received from User’ from the transaction ‘Type’ drop-down menu. Please note that this option will only be available for business bank accounts. You won’t see this option if the bank account has been marked as personal or for a user who has been allocated the role of ‘Accountant’.


3. Choose the relevant user

Select the relevant user from the ‘Received from’ drop-down menu.


4. Choose the appropriate transaction ‘Category’

The item you need to select from the ‘Category’ drop-down menu depends on your FreeAgent account type.

If you have a sole trader, partnership, LLP or unincorporated landlord account type, select ‘Capital Introduced’.


If you have a limited company account type and the director is buying shares in the company, select ‘Share Capital Introduced’.


If the shares were bought from the company for more than their par value, you'll need to split the transaction between the par value and the premium value. Then, explain the par value as ‘Share Capital Introduced’ as detailed above and the premium value as ‘Other Money In’ for the transaction ‘Type’ and ‘Share Premium’ as the transaction ‘Category’.


5. Explain the transaction

Once you’ve selected the appropriate category, select ‘Explain Transaction’ to complete the process.


If you have more than one transaction that you need to explain as capital introduced from the same user, tick the checkboxes to the left of the relevant transactions and select ‘Money Received from User’ from the ‘Type’ drop-down menu in the panel on the right-hand side. Select the relevant user from the ‘Received from’ drop-down menu, the appropriate category from the ‘Category’ drop-down menu and select ‘Explain [X] transactions’ to explain all the selected transactions in the same way. Remember to include an appropriate description for the selected transactions. If you leave the ‘description’ field blank then the transactions will be given the original descriptions that came through for them via the bank feed import or bank statement upload.


For more information on explaining multiple transactions at once, please see this article.

Regardless of which option you choose, a record of the bank transaction(s) being explained will appear in your Audit Trail report.


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