Director loan...help!

**northernladyuk** · 2 May 2018, 12:11

Originally posted by holograms View Post

I've just received my end if year account and I've taken out more that I should have(£22k). I've done this in the past but I've had more profit in my company and just opted to take a lower dividend to repay the loan. However, this year my profit is a bit lower and I won't be able to pay this all back by the end of the month(31st May). I really do not want to pay 32.5% tax on this loan to HMRC.
I've got saving I can use however this is for a deposit on a property..
My thinking was to use my saving to pay off the loan for the deadline date. And then transferring my saving back into my personal account and for the rest of the year not pay myself a director salary..

I would love to hear any feedback on this as I'm already paying HMRC (loan settlement) and paying back a loan with a high percentage is not something I want to do.

1. Did you originally take the money out of your business account as a director's loan, or as salary, or as dividends, or did you just take it out?

2. What does your accountant advise?

**northernladuk** · 2 May 2018, 12:33

Oh dear, oh dear, oh dear.

**MrButton** · 2 May 2018, 12:35

Mental. Get your accountant to sort it out.

Then close your company and go via an umbrella or get a permanent role.

**northernladuk** · 2 May 2018, 12:36

Originally posted by MrButton View Post

Then close your company and go via an umbrella or get a permanent role.

Looking at his posting history he did that before and that didn't really work out either.

**TheCyclingProgrammer** · 2 May 2018, 13:49

Just to be clear: you're DLA is overdrawn by £22k?

If so, you'll be caught by the bed and breakfasting rules, where HMRC can treat any subsequent loan made after the repayment as a continuation of the previous loan if they believe that the repayment was purely to avoid the s455 tax. Unlike loans under £15k, where there is a 30 day limit between repayment and a subsequent loan (the first rule), there is *no* limit on this gap for bigger loans (the second rule).

TLDR; your scheme won't work if you get caught.

**northernladyuk** · 2 May 2018, 14:03

Originally posted by TheCyclingProgrammer View Post

Just to be clear: you're DLA is overdrawn by £22k?

If so, you'll be caught by the bed and breakfasting rules, where HMRC can treat any subsequent loan made after the repayment as a continuation of the previous loan if they believe that the repayment was purely to avoid the s455 tax. Unlike loans under £15k, where there is a 30 day limit between repayment and a subsequent loan (the first rule), there is *no* limit on this gap for bigger loans (the second rule).

TLDR; your scheme won't work if you get caught.

What if the first loan is over 15k and the second loan under 15k? Just curious.

**WordIsBond** · 2 May 2018, 14:08

Ok, you've got a problem. You also need to pay interest since it is more than £10K, or it becomes a (taxable) Benefit in Kind.

At least you have a month.

So, a few questions to clarify:

1. It's not entirely clear from your original post, but do we take it that your year ended 8/31/2017, and you had this much outstanding as of that point in time? If not, what was your year end?

1.A) If your year end was 8/31, why are you just now getting your accounts?

2. Did you take this money as dividends or as loans or without specifying what you were taking? (If the latter, HMRC would probably say it isn't a loan, but salary, and then things get really exciting in a not good way.)

2.A) If as dividends, why are you now saying it was loans? Because the dividends were too high and are thus illegal dividends?
2.B) If as loans, when did you take them out?

edited to add 3. When are you planning to buy the house?

**MrButton** · 2 May 2018, 14:20

Your solution is to use your savings to pay off your DLA.

Then rebuild your personal savings with legal planned dividends. Not by simply trying to shuffle money around.

I advise against buying a house. First get a grip of yours and your companies finances.

I stand by the stance you should be looking for a permie role based on how you’ve coped so far.

**michaelC** · 2 May 2018, 14:28

how about

Maybe pay the loan back and then withdraw it again but declare it as dividend immediately (even though you technically don't have reserves to support it) -to avoid bed&breakfast. Still illegal but more chance to get away with it.

However the new dividend would fall into the next financial tax year of the company and just make sure you build enough reserve to justify the dividend so that at the end of next financial year you are not overdrawn.

effectivelly you are declaring dividends now on money that will be earned in the future.

Director loan...help!