Loaning Money

[DanTheMan]

Right then, first dodgy question of the day

I've heard that you can loan yourself money from your Ltd company up to a certain value. Does anyone out there actually do this or will it get HMRC on yo ass quick smart?

P.S. If Nixon sees this: I still have the form to send to you guys just been an ickle bit busy lately. Ta.

[Sockpuppet]

Right then, first dodgy question of the day

I've heard that you can loan yourself money from your Ltd company up to a certain value. Does anyone out there actually do this or will it get HMRC on yo ass quick smart?

P.S. If Nixon sees this: I still have the form to send to you guys just been an ickle bit busy lately. Ta.

£5000 as a directors loan.

[Pondlife]

Up to about £5K IIRC. Anymore and it's a BIK on the interest or at worse fraud if it's not accounted for properly.

HTH

[Nixon Williams]

Right then, first dodgy question of the day

I've heard that you can loan yourself money from your Ltd company up to a certain value. Does anyone out there actually do this or will it get HMRC on yo ass quick smart?

P.S. If Nixon sees this: I still have the form to send to you guys just been an ickle bit busy lately. Ta.

We would advise against taking a loan as it can catch you out if you are not very careful!

However the basic rules are:

1. Provided it never exceeds £5000 then the Revenue do not seek to impose any tax on the loan.

2. If it does exceed £5000 at any one point then you will be liable for tax on the deemed benefit and your company will pay NIC on this amount as well.

3. If the loan is outstanding at the year end and not repaid within 9 months then the company is liable for extra tax of 25% on the sum. This can eventually be repaid but it a payment that can and should be avoided.

We always advise clients only to take what we advise in terms of salary, expenses and dividends. This way thereis no chance of getting in a pickle!

Alan

[tim123]

Up to about £5K IIRC. Anymore and it's a BIK on the interest or at worse fraud if it's not accounted for properly.

HTH

For a normal person: any more and it's a BIK (assuming that it's not charged at 'normal' interest rates).

For a director, any more and it's illegal. (not that there is much chance of getting caught)

tim

[DanTheMan]

Yeah I think the salary/dividend route is a good one. But other contractors have recommended that for my first 3-5 months of my first contract I could loan myself up to £5k and then pay it off (as mentioned) at the end of the financial year. Doing this would mean that while I'm finding my feet I'm not messing around with Paye/BACS, corporation tax, etc.

I know a good accountant will advise me better but I was just wondering if anyone is actually operating like this?

[Nixon Williams]

There is no corporation tax to "mess about" with, that will be paid 9 months after your first year end so a long way off.

PAYE will be due when you take a salary, and is only a payment once per month, if not quarterly.

It is not as bad as you might think or been led to believe.

Alan

[DanTheMan]

It just seems like when I think there's nothing left ot cross off the 'to do list' something else comes along. Which is why I'm going to let someone else take care of all that for me. I think the problem is that I'm working alongside a lot of very experienced contravtors at the moment and they all have completely different ways of doing things... which is something I really like about contracting. I just have to find my own way.

[VectraMan]

I understood the idea was that as (according to some) you shouldn't pay a dividend until you're into clear profit, and as a low salary may not be enough to live off, the company loans you money until you can pay that first dividend.

But then accountants seem to say to pay dividends monthly anyway.

It's hard to see any circumstance where you'd have money in the company to loan yourself but not available for dividends, unless you used money earmarked for corporation tax or VAT, which isn't good.

[boredsenseless]

I understood the idea was that as (according to some) you shouldn't pay a dividend until you're into clear profit, and as a low salary may not be enough to live off, the company loans you money until you can pay that first dividend.

But then accountants seem to say to pay dividends monthly anyway.

It's hard to see any circumstance where you'd have money in the company to loan yourself but not available for dividends, unless you used money earmarked for corporation tax or VAT, which isn't good.

The key point to this post is in the last paragraph, never mess with HMRC's money or they'll mess with your living arrangements and give you a nice new address starting with HMP ....