Directors loan in place of credit - any downside if you're solvent?

[TechJinx]

Afternoon all,

I've just moved house and due to upsizing need to get a whole load of new furniture etc. For the first time in a very long time I've been refused credit - by one of the 0%, 3 years warehouses of all people. I'm thinking its because I've

a) moved & doubled my mortgage
b) am not on the electoral role at the new place yet
c) gave my Ltd as my employer for the first time for credit

or some combination. I've got a credit file checker account so there's no shenanigans I wont know about.

Anyway - I ended up sticking £5k of furniture on the never never instead and I was wondering if there is any reason why a Directors loan isn't a good option here?

Been contracting 5 months, I have £10k in retained profit which I'm increasing at a rate of about £2k a month and am in a government contract in a management role thats pretty secure for at least the next year.

As far as my research goes it appears you pretty much have Carte Blanche to loan yourself up to £10k (but not a penny more) from your company at 0% interest with no BIK.

Asked my accountant and they gave me all the info including a fact sheet but said they didn't recommend them. However they were talking about this in the context of dipping into any monies reserved for VAT & tax.

ran a forum search but only seemed to get results where people had run company accounts with no paperwork and called everything they did a Director's loan so any experience welcomed.

[tractor]

...

Afternoon all,

I've just moved house and due to upsizing need to get a whole load of new furniture etc. For the first time in a very long time I've been refused credit - by one of the 0%, 3 years warehouses of all people. I'm thinking its because I've

a) moved & doubled my mortgage
b) am not on the electoral role at the new place yet
c) gave my Ltd as my employer for the first time for credit

or some combination. I've got a credit file checker account so there's no shenanigans I wont know about.

Anyway - I ended up sticking £5k of furniture on the never never instead and I was wondering if there is any reason why a Directors loan isn't a good option here?

Been contracting 5 months, I have £10k in retained profit which I'm increasing at a rate of about £2k a month and am in a government contract in a management role thats pretty secure for at least the next year.

As far as my research goes it appears you pretty much have Carte Blanche to loan yourself up to £10k (but not a penny more) from your company at 0% interest with no BIK.

Asked my accountant and they gave me all the info including a fact sheet but said they didn't recommend them. However they were talking about this in the context of dipping into any monies reserved for VAT & tax.

ran a forum search but only seemed to get results where people had run company accounts with no paperwork and called everything they did a Director's loan so any experience welcomed.

I would have saved up for 3 months and bought it all cash, but that's because I hate credit.

There is no reason yourco cannot lend you money at commercial rates (HMRC rates are variable and available on their site) and no one will bat an eyelid as long as it's all above board and you pay in the capital and interest according to a documented agreement between you and yourco. IANAA and IANAL.

[northernladuk]

Personally I wouldn't have advised you bugger about with directors loans so soon in to contracting. You warchest is your first priority, not living beyond your means. No contract is safe, whatever you think.

Something doesn't sound quite right about your finances as well? 10k retain profit after only 5 months? Have you paid your dividends up to the taxable limit already?

Am assuming you know the rules around directors loans so don't need to go over them again do we?

Also if you or your accountant cock your finances up in the first year the DL can be used to carry it over without having to take extra dividends etc. If you have used this up to the max then your options become a little more expensive and could negate any benefit of using a loan to clear your personal debts.

Not sure how you searched but if you use the method as described in the FAQ section there over 700 threads discussing them.

https://www.google.co.uk/webhp?sourc...ntractoruk.com

All that said there is nothing stopping you but something just doesn't sit right with me about this. Up to you.

P.s. If you don't trust your accountant maybe best to look for another. Are they are contractor specialist and did you ask them why they don't recommend them? Food for thought maybe.

[TechJinx]

I would have saved up for 3 months and bought it all cash, but that's because I hate credit.

Yes but if I made my pregnant wife sit on the floor because we didn't have any sofas It wouldn't be a happy new home...

Personally I wouldn't have advised you bugger about with directors loans so soon in to contracting. You warchest is your first priority, not living beyond your means. No contract is safe, whatever you think.

Something doesn't sound quite right about your finances as well? 10k retain profit after only 5 months? Have you paid your dividends up to the taxable limit already?

All that said there is nothing stopping you but something just doesn't sit right with me about this. Up to you.

I was quite lucky in that I got a substantial pay out in lieu of notice from last perm job - hence billing ~12k a month gross but only taking dividends around the £3-£3.5k mark.

Paid my first load of HMRC blood money as well

P.s. If you don't trust your accountant maybe best to look for another. Are they are contractor specialist and did you ask them why they don't recommend them? Food for thought maybe.

No they are a well know specialist but I was just interested in the experience other's had of these loans - I've asked again in this specific context to see if they have a different opinion this time.

I was approaching it from a "why wouldn't you" as it looked pretty sensible to me and was wondering if I'd missed anything

[tractor]

...

Yes but if I made my pregnant wife sit on the floor because we didn't have any sofas It wouldn't be a happy new home...



I was quite lucky in that I got a substantial pay out in lieu of notice from last perm job - hence billing ~12k a month gross but only taking dividends around the £3-£3.5k mark.

Paid my first load of HMRC blood money as well



No they are a well know specialist but I was just interested in the experience other's had of these loans - I've asked again in this specific context to see if they have a different opinion this time.

I was approaching it from a "why wouldn't you" as it looked pretty sensible to me and was wondering if I'd missed anything

Well, you did say you had just upsized so it would be natural to assume you already had some stuff unless you upsized from a box under the bridge lol.

[TheFaQQer]

I was approaching it from a "why wouldn't you" as it looked pretty sensible to me and was wondering if I'd missed anything

As long as you understand the rules properly, then I see nothing wrong with borrowing from the company to do this. As long as it's not money that you'll need elsewhere, then go for it.

Make sure you account for it all properly so that you keep on track, and at some stage you'll have to repay it...

[northernladuk]

I was quite lucky in that I got a substantial pay out in lieu of notice from last perm job - hence billing ~12k a month gross but only taking dividends around the £3-£3.5k mark.

Why don't you just divi out all the remaining profit in one go. You don't need to divi to yourself every month. You can do it whenever you want. I do my full year as soon as the tax year starts and get it in a high interest account. If you have 10k then divi the lot out and just don't do it again for 3 months.

You just need to be careful with DL's. They aren't a free way of getting yourself out of the mire. We have had plenty of people come on here that feel they need to max them whenever they fancy something new. It's an option, not a defacto standard that must be used. As I said it's up to you though. Everyone is always happy when they are rolling in company money in the first year. They aren't so when the second gig doesn't appear for 3-6 months and they owe their LTD money they can't pay.

[TechJinx]

Why don't you just divi out all the remaining profit in one go. You don't need to divi to yourself every month. You can do it whenever you want. I do my full year as soon as the tax year starts and get it in a high interest account. If you have 10k then divi the lot out and just don't do it again for 3 months.

cause then I'd have to pay an extra 25% tax on it as I'm up near the higher limit this year cause of the payout

They aren't so when the second gig doesn't appear for 3-6 months and they owe their LTD money they can't pay.

I'm different - I'll always get instantly hired as I'm awesome....

[northernladuk]

c
I'm different - I'll always get instantly hired as I'm awesome....

In that case go for it.... just get an accountant that understands contractors properly IMO....

[jamesbrown]

I'm different - I'll always get instantly hired as I'm awesome....

Yeah, we'll be looking out for "why can't I land a second gig?" in a month or two.

Anyway, if you invoice 12k and divi 3k, why do you only have 2k of retained profit each month?

There's nothing to stop you taking a DL. However, the danger is that you get into a cycle of borrowing company money (essentially viewing it as your own money) in order to sustain a lifestyle that you can't really afford. Although the scenario/need you describe in this instance sounds perfectly reasonable (can't have a pregnant wife sleeping on the floor etc. ), you should look into building up your warchest going forward and, once in place, don't over-think this 25% marginal tax on higher rate dividends. It's effectively the same rate of tax that permies pay and it's perfectly fine to not be totally tax efficient if you need the money.