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How to process an overpayment to a director

This article describes how to explain a salary payment that has been paid out of your bank account to a director if the amount was larger than they were due to receive. It also describes how to explain the money paid back by the director.

Once the bank transaction relating to the overpayment has been imported into your FreeAgent account via a bank feed or uploaded from a bank statement, you will need to split it and explain each part using the appropriate ‘Type’ and ‘Category’ as detailed below.

Please note that you will need to have level 6 access or above to your FreeAgent account to explain bank transactions. If the overpayment relates to an employee, please see this article.

Explaining the overpayment

1. Navigate to the relevant transaction

First, navigate to the ‘Banking’ tab at the top of the screen and select ‘Bank Accounts’ from the drop-down menu.

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Choose the relevant bank account from the list.

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Select the transaction that relates to the overpayment.

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2. Split the bank transaction

Next, you will need to split the bank transaction into the amount which is the salary payment and the amount which is the overpayment.

To do this, select ‘More Options’.

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To explain the proportion that is a salary payment, select ‘Money Paid to User’ from the ‘Type’ drop-down menu and enter the amount that the director should have received.

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Next, select the relevant user from the ‘Payment to’ drop-down menu and select ‘Net Salary and Bonuses’ from the ‘Reason’ drop-down menu.

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Enter a description in the ‘More Detail’ section and then select ‘Create New Explanation’ at the bottom of the screen to complete the process.

3. Explain the remaining balance

When you split the bank transaction, FreeAgent will create a new transaction for the remaining balance, which you will also need to categorise.

To do this, select this new transaction, then select ‘Money Paid to User’ from the ‘Type’ drop-down menu.

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Next, select the relevant user from the ‘Payment to’ drop-down menu.

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Then, select ‘Payment from Director Loan Account’ from the ‘Category’ drop-down menu.

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To complete the process, select ‘Explain Transaction’.

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Explaining the money paid back

When the overpayment has been paid back to your company, you will need to explain the transaction as follows.

Select the relevant transaction and select ‘Money Received from User’ from the ‘Type’ drop-down menu.

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Next, select the relevant user from the ‘Received from’ drop-down menu.

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Then, select ‘Payment to Director Loan Account’ from the ‘Category’ drop-down menu.

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To complete the process, select ‘Explain Transaction’.

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