The director's current account: what it is and why it becomes dangerous

In almost every company's books there is an account the owner rarely looks at: the director's current account, the rekening-courant as we call it in Belgium. That is where things went wrong for me twice. Once in one direction, once in the other.

What is a current account?

It is the running account between you and your company. If you pay a business cost privately, your company owes you money. If you take money out of the business, or the business pays for something private, you owe your company money. Anything not booked as salary, dividend or a normal business cost often ends up there.

Handy, because it is flexible. And dangerous, for exactly the same reason.

How it quietly builds up

In my case, costs with incomplete documents were booked to my current account as director. A receipt without the right details, an invoice that was missing. Nobody said anything about it. Until a new accountant asked why that balance was so high. Cleaning it up cost me a lot of money.

When you owe your company money

Then you are effectively borrowing money from your own company. If you pay no interest on it, or too little, the tax authorities treat that as a benefit in kind, which is taxed as income. The rate for it is set again every year.

The biggest risk comes with bankruptcy. The trustee then claims that amount immediately and in full. It does not matter how the balance came about.

When your company owes you money

That looks safe. It is your money, it is just sitting in the business. Your company may even pay you interest on it, but within limits. Above them, the interest is no longer deductible for the company, or it is treated as a dividend.

But in a bankruptcy, that money makes you an ordinary creditor. You are at the back of the queue, behind employees, the tax authorities, social security and secured creditors. My current account was in my favour when I had to go to the trustee. That money is gone. How that went, you can read in going to the bankruptcy trustee.

What I would do now

• Look at your balance every quarter, not only at year-end.
• Make sure every cost has a correct document. Otherwise it ends up in your name.
• Do not leave large amounts in the business without knowing what happens to them if things go wrong. Discuss with your accountant how to protect that money.
• If the business is struggling, bring your current account to zero as quickly as possible. See what if there is no way out.

What you can automate

The balance itself. The current account is simply in your accounts, so you can have it pulled and shown every month, with an alert when it passes a limit you choose, in either direction. Then you do not hear about it from a new accountant.

The claim

Your current account is not a savings pot and not a credit line. It is a risk you need to see every month.

Tell me what keeps you up at night. No-obligation conversation. No sales talk.

This article is my own experience, not tax or legal advice. Discuss your situation with your accountant.