Director's loan to buy a cheap(ish) car

[7specialgems]

I'm in a 3--6 month gig and OH is no longer happy about my daily theft of the family car.

Dividends for the year are planned for other purposes so I will require some credit to sort a car out.

Looking at spending no more than £5k.

Plan is to make repayments per month to my Ltd at a rate which covers (IMO) the car's annual depreciation per month.

Plan is then to sell the car for the balance outstanding once I've finished the gig and then settle the director's loan.

Would a director's loan be a charge-efficient way about arranging funding at short notice? Or would anyone who has done this before recommend going out and getting cheap credit in my personal name instead?

I've had a go at interpreting the jargon on HMRC's website but I left that with more questions than answers.

I'm sure this is a common requirement for contractors so hopefully others on here are willing to share their experiences and advice.

Cheers

[ladymuck]

https://www.qdosaccounting.com/what-...irectors-loan/

[MrButton]

Best to check with your accountant. But I don’t see an issue with this approach.

Assuming it’s retained profit after all liabilities accounted for (if not then don’t do it!) and it doesn’t eat into your warchest.

[MrButton]

https://www.qdosaccounting.com/what-...irectors-loan/

That’s quite an old article.

OP search for some more recent ones. As they will have current amounts and percentages. I.e the QDOS one here says over 5k is taxable as a BIK. I think that’s over 10k nowadays.

[7specialgems]

Thanks for the links all.

It looks like my options are to do it via a director's loan at market rates Vs a 0% card and approx 4% fee in my own name.

I suppose the director loan route edges it as most the fee is net income to the Ltd. In a roundabout way the cost for credit costs about half.

Then if the loan was to run over my company's birthday then j end up with a bit of extra paperwork at year end.

[MrButton]

I’m pretty sure if it’s less than £10k then you don’t need to pay interest at all on the loan and you don’t have to pay BIK. But you should really talk to your accountant if you have one.

If you don’t have one. Get one.

[ladymuck]

That’s quite an old article.

OP search for some more recent ones. As they will have current amounts and percentages. I.e the QDOS one here says over 5k is taxable as a BIK. I think that’s over 10k nowadays.

The esteemed Qdos not staying current? Shocking.

[SueEllen]

You won't want to sell the car at the end of the gig because you will get another gig which is likely to involve needing a car. In other words you are going to become a two car household simply because you are contracting.

[northernladuk]

So your entire income for next year is allocated to the point out can't flex 5k for car that you need for work and need to look at loans and credit cards? Blimey.

[WordIsBond]

I'm with NLUK. You really can't manage £5K? Might consider reordering your spending so you aren't so close to the edge. Hope you have a nice reserve in your company if something goes wrong.

But anyway, you are wrong that you'd have to pay market interest. The limit is £10K, so if you take out a directors loan for £5K you do not have to pay interest and it is not a BIK. It does have to be paid off 9 months after the end of the company year in which it was taken out, or you get hit with a tax charge and complicate your life. So I'd really not recommend going that route unless you are going to pay it off.

You said you would be paying some of it off, anyway. If you don't get it all paid off by 9 months after the end of the company year, I'd recommend taking an extra dividend, even if it means higher rate dividend tax, to pay the rest of it, and have done with it.