Paying back Loan

[northernladuk]

Thanks AA.. and exactly, there are some circumstances there such things are necessity and can work!!

NLUK ... I truly appreciate your attempts to help, but you have appointed yourself the police on 'No Loans' 'Loans are a Disaster' 'You are a moron if you take a loan' on this forum...

I've never said any of those things.

My question was simple, I was not asking your permission on whether I can take a loan or not, taking a loan is perfectly legal as long as the director abides by all the legal and tax matters, yes it may not be the most tax efficient, but sometimes its a necessity. I do have a tax advisor, however, I like to ask some questions here prior to speaking with him, then I can make up my mind.

But the questions you ask are not the full picture. You can ask a question on one element of a loan yet still plough on in to a horrible mess because you didn't consider other aspects. We've seen it many many times before. It's not unreasonable to ask further questions based on the complete nativity of the first question.

I know you've got a cob on with me but if you take the chip of your shoulder you might see all my questions were directed in an effort to try helping you.

A perfect example is Simes chiming in and getting it utterly wrong to show he doesn't understand how loans work. He won't admit it but I've helped him by digging further in to the topic.

Others and I are entitled to ask questions even simple ones on this forum.. if we don't then what's the point of this forum??

Does that not include the people trying to help you (for free) as well?

[simes]

As NLUK himself says over and over... ?

And over and over and over...

It is not just on this topic he has self appointed as the ultimate arbiter. It is on Everything in Life. And he loves to remind everyone of this fact with habitual sneery sarcasm.

Every forum has one.

[SandyD]

I've never said any of those things.

But the questions you ask are not the full picture. You can ask a question on one element of a loan yet still plough on in to a horrible mess because you didn't consider other aspects. We've seen it many many times before. It's not unreasonable to ask further questions based on the complete nativity of the first question.?

I do not need to tell everyone the full picture, simple question, does loan repayment with % trigger extra CT ... no where I asked can I please take a loan??

I know you've got a cob on with me but if you take the chip of your shoulder you might see all my questions were directed in an effort to try helping you.


Does that not include the people trying to help you (for free) as well?

I have no cob (whatever that means) with you at all, I know you were trying to help in your own way... I know you actually sent me valuable information on private messages a couple of years ago... however, I will not (and don't think others ) should be deterred from asking questions because you don't like loans or company cars etc... Your point of view is well known by now... but others have a different business model and different needs.

[Maslins]

To be fair, the repayment of a loan requires exactly the same sort of planning as the paying of VAT and Taxes. If one can sort their lives out to cover taxes on a regular basis, one hopes the loan should not be too onerous a hardship...

Not having access to others' financial planning and inherent consequences, can I ask why you think these people find themselves fundless in respect to loans? Or, do they find themselves fundless for all sorts of payments including their tax responsibilities?

I don't think it is the same as ensuring you have funds for a VAT liability though. The below is based on FreeAgent and uses terminology from it, though there will be equivalents for other packages:

The "Carried forward/distributable" figure is great for company taxes. For contractors/freelancers, 99% of the time if that's positive, you can be confident your company has enough funds to settle its taxes. Rare occasions it won't be could be massive bad debts, or just bookkeeping records are gibberish meaning the distributable figure is gibberish too. This is a very easy way for non experts to keep tabs on and understand whether or not they can meet their company tax liabilities.

For personal finances, it's far less easy. FreeAgent doesn't track your personal bank transactions. It doesn't know whether you have £100,000 sitting in a personal savings account, or whether you personally are in debt up to your eyeballs. Your accountant typically won't have ready access to that information either (unless you specifically tell them). So personal tax liabilities often come as more of a shock. They show on the FreeAgent tax timeline...but still, it's a separate thing someone needs to keep track of independent of the distributable figure.

Director loans kinda end up in that second boat. It's a personal debt. Often it won't actually be physically repaid from personal funds, instead a dividend will be declared to clear it. That's doable provided there's sufficient retained profit at the time, but even if there is, it still leads to a hefty personal tax bill in the year the dividend is declared...at which point the individual complains "why am I being taxed on that dividend when I didn't get paid it".

In a typical situation, Joe Bloggs wants to keep earnings at basic rate level, so circa £45k/year. However, the company has a further £20k that should be earmarked for VAT/CT, which they want to take out cos they're doing an extension/whatever. Short term, life is good, they've taken £65k from the company, only pay tax on £45k, happy days. Next year comes and they've taken £45k again. They're used to getting £65k/year, so they wonder about taking extra funds. We point out that to clear the director loan we need to declare an extra £20k dividends this tax year...so they're already at £65k before considering taking any more out. "What?! My personal tax bill will be huge! I'm going to need to take a director loan of £10k to pay my personal tax." We see this time and time again, which is why we recommend against them.

Maybe you'll be different. I do accept that if there is a genuine one off extra short term personal cost people have, and the individual remains very aware of the loan and the consequences the following year, it can make sense. Often people forget though, and then moan when it unravels.

[northernladuk]

And over and over and over...

It is not just on this topic he has self appointed as the ultimate arbiter. It is on Everything in Life. And he loves to remind everyone of this fact with habitual sneery sarcasm.

Every forum has one.

Bearing in mind you've post two totally incorrect posts on this thread and another one which needed to be explained to you. You've actually learned a lot from this thread so sometimes it's just better you shut up hey?

[northernladuk]

I do not need to tell everyone the full picture, simple question, does loan repayment with % trigger extra CT ... no where I asked can I please take a loan??

I have no cob (whatever that means) with you at all, I know you were trying to help in your own way... I know you actually sent me valuable information on private messages a couple of years ago... however, I will not (and don't think others ) should be deterred from asking questions because you don't like loans or company cars etc... Your point of view is well known by now... but others have a different business model and different needs.

That's fair enough. I can't argue with that. For the same reason don't get upset if I also ask valuable questions on your situation as well.

But you've made your position clear now and I can respect that.

[SandyD]

In a typical situation, Joe Bloggs wants to keep earnings at basic rate level, so circa £45k/year. However, the company has a further £20k that should be earmarked for VAT/CT, which they want to take out cos they're doing an extension/whatever. Short term, life is good, they've taken £65k from the company, only pay tax on £45k, happy days. Next year comes and they've taken £45k again. They're used to getting £65k/year, so they wonder about taking extra funds. We point out that to clear the director loan we need to declare an extra £20k dividends this tax year...so they're already at £65k before considering taking any more out. "What?! My personal tax bill will be huge! I'm going to need to take a director loan of £10k to pay my personal tax." Maybe you'll be different, but we see this time and time again, which is why we recommend against them.

Maybe you'll be different. I do accept that if there is a genuine one off extra short term personal cost people have, and the individual remains very aware of the loan and the consequences the following year, it can make sense. Often people forget though, and then moan when it unravels.

Thanks for that, great illustration of how loans can be an issue... however, assuming one takes the loan to invest/generate more money through another project (as opposed to spending the money or build and extension) then they should be able to pay the extra huge SA tax... so this is my point, as a business its worth looking into raising capital through ltd ( but of course leave enough to pay CT and VAT) and ensure your project generates enough to pay your SA tax bill.


Mind you I was just talking to another contractor friend who did what you said above, took a loan to completely refurbish the house and extend it, she drew the loans at intervals (not all at once) , so they appeared in different financial years, then paying the SA bill through further divs.. yes her SA tax is big, but she knew what she was doing and accommodated for it.

[northernladuk]

Mind you I was just talking to another contractor friend who did what you said above, took a loan to completely refurbish the house and extend it, she drew the loans at intervals (not all at once) , so they appeared in different financial years, then paying the SA bill through further divs.. yes her SA tax is big, but she knew what she was doing and accommodated for it.

Were these under 10k? Was she repaying them wholly? HMRC could easily look at that and deem it's income unless done very very carefully.

I assume in this case that she was aware this was likely to be completely inefficient due to the extra tax on the divis but was more a means to an end than an exercise to get cheap efficient money?

P.S. Listening to other contractors is a very bad thing in general. I've heard stories that would make you cry (either laughing or in sheer frustration). The contractor who's accountant advised he can buy a Porsche 911 on the company, depreciate it and claim the payments as an expense. He didn't get caught and tells everyone how he did to much wide eye'd admiration. Makes my blood boil.

[simes]

I don't think it is the same as .................

............…. is a genuine one off extra short term personal cost people have, and the individual remains very aware of the loan and the consequences the following year, it can make sense. Often people forget though, and then moan when it unravels.

Many thanks. Very interesting.

The 'not keeping on top of affairs' and 'forgetfulness' seem to be the lead factors for the accountants to deal with.

For my part, although now vastly outdated as a concept, I use a spreadsheet built in 2000 that keeps me up to date with both CT and Personal Tax as Life moves forward. Never any surprises.

And, for the first time ever, I have just taken a £5k director loan in January, that will be paid back in March. (Which is before my YE)

[northernladuk]

For my part, although now vastly outdated as a concept, I use a spreadsheet built in 2000 that keeps me up to date with both CT and Personal Tax as Life moves forward. Never any surprises.

Freeagent does the CT, VAT and everything automatically so no need for a spreadsheet. Personal tax is sorted by two payments on account a year. Why do you need a spreadsheet at all?

And, for the first time ever, I have just taken a £5k director loan in January, that will be paid back in March. (Which is before my YE)

and what do we say about taking loans out and not understanding how they work. It's been explained to you twice in this thread. It doesn't need to be paid by year end... I'll let you research when it's due by. But taking loans when not understanding the properly is exactly what this thread is trying to avoid.