Director Loan repayment with Dividend Income - Tax implications

[ContrataxLtd]

Do you mean to say that the S455 surcharge shall be due for payment on end of July?

That's correct, the s455 is due at the same time as the normal corporation tax payment.

Martin
Contratax Ltd

[TheCyclingProgrammer]

coolguycp1: I believe the s455 tax will be calculated based on the outstanding amount in July 2015 and will be reported on your Corporation Tax return for your year end Oct 2014.

If you continue to pay this off and manage to pay it off by Oct 2015, then you will be due a refund on your 2014-15 CT bill in July 2016. That gives you over a year to pay it off and you'll have the tax back in 2 years.

If you pay it off after Oct 2015 but before Oct 2016, you'll be due the tax back in July 2017.

I'm 90% certain the above is correct so you should check this with your accountant.

Edit: the s455 will of course become payable at the same time as the rest of your CT which is before the due date of the actual return that it will be reported on.

[Peter Loew]

Way around the BIK

I was just having a brief exchange with my accountant on company loans as I am thinking of drawing around 15k to pay back over a period of around 3 years. He said that a way round the BIK is for the company to charge me the HMRC interest base (at 3.25% now), so no BIK would be incurred. So the only thing to bear in mind is the S455 (which is covered by healthy cashflow and recovered after loan pay-off).

When paying back the interest, he said this can be done monthly as part of the loan repayments, or it can be added to the exiting loan paid by me in the year. Of course the interest paid to the company is assessable income.

Assuming you have the cashflow for the S455 and are fine with that, and that you want to take out a loan >10k or pay back beyond the 9 months, surely this is a better option than doing the BIK route or personal loan route, as you're paying back into your own company is more beneficial?

[TheCyclingProgrammer]

This has been discussed on here before but I'm pretty sure the consensus was that charging interest at HMRC prescribed rates is not only less hassle than declaring the BIK, it's financially the better option because, as you say, the effective rate is much smaller as 80% of the interest paid will become retained profit.

If you have the cash flow to take the temporary hit of the s455 charge then I can't see any downsides as long as you have a sensible repayment plan in place. It's cheaper than getting a loan elsewhere.