Best way to calculate interest on Directors Loan accounts over £10k

[malvolio]

.... though the latter is not tax deductible

Yes it is, but you can't offset it against CT. I won't even begin to explain why (there used to be a detailed explanation on their website - good luck finding it) but it's based on the definition of a trade association dating back ot the early 1900s.

[css_jay99]

Eh? But it comes out of your pocket? It's you paying the interest so doesn't really 'cover' anything surely?

I am not in agreement. Last time I checked, my business easy access account was only generating 0.75% interest

Here are my calculations:-

Assuming 2% interest on £37K over 1 yr is £580 approx and yearly accounting fee is £360

I pay Ltd co. £580 as interest on personal loan.
Profits chargeable to corporation tax is £220 = £580 - £360
Corp Tax @19% = £42
Increased reserves £220 - £42 = £178
----
Company is still better off loaning the money to me than leaving it in the bank. This looks like a win to me for ltd co, completely offsetting accountant fees with this arrangement and income of £580.

My mortgage is 3.24% which is likely to step up to 3.74% next week. That's £968 minimum over next 1 Yr with no more rate hikes. Just from that alone, I am £388 (968-580) better off personally. That savings might look insignificant as a contractor, but think about how much money you will need to keep in a savings a/c just to generate that sort of savings. Sometimes spending less could just be as important as earning more.

Unless my calculations are flawed, I think it's worth a punt.

Yes it is, but you can't offset it against CT. I won't even begin to explain why (there used to be a detailed explanation on their website - good luck finding it) but it's based on the definition of a trade association dating back ot the early 1900s.

I was not saying you could offset against corp tax. IPSE is also something else I need to decide if I still need or not after 2 years of not trading

[northernladuk]

Unless my calculations are flawed, I think it's worth a punt.

And that is absolutely key and the bit you need to get professional advice. To go ahead on your assumptions and advice from us is bordering negligent.

And the fact that you are talking in the low hundreds in your calcs and not much in three figures per year I'd personally disagree it's worth it but then I'm very risk averse. You've not mentioned once the worst case scenario of it not going to plan which personally I'd factor in. I tend to not concentrate completely on the good as you can't do anything about that, but look at the bad which you can do something about if you get me. Everything works when it works, it's whether you can pull it back if it's goes bad.

But yes, I'll agree there are savings there so it's your call. Your one and only task is now to go speak to an accountant. To a) Get the process right and b) make sure your numbers are right. It's only going to take a small percentage mistake or missed line item and it's gonna blow such low numbers.

Sorry for being super negative but experience on here tells us that anyone comes on here so eager to use some tax advantage is rarely looking at the bigger picture and is just looking for the answer they want to hear, which is rarely the correct answer in the particular circumstance.

EDIT : Did we talk about making sure that this money is above and beyond your warchest? Will a two, three or more months on the bench in the loan period affect anything?

[WTFH]

... after 2 years of not trading

OK, so there's one of those dang facts.

In post 1, if you had said "My company isn't trading, but I've got £50k sitting in it, I'm not drawing a salary and only taking minimum dividends. I've checked with my accountant and this is what they are suggesting"
That would have got different answer to what you wrote in post 1, your vague bit in post 4 where you might be saying that you are "ghosting" your accountant - which probably means you're not using an accountant for whatever reason.

You mention "trial balance of £35k" in post 3, then in post 12 you're talking about borrowing £37k, i.e. £2k more than you claim the company has (revenue & capital)

A few questions:
How much will your company need to pay the taxman this year?
How much will that leave in the company account?
What else are you not telling us (or not making clear)?

[css_jay99]

OK, so there's one of those dang facts.

In post 1, if you had said "My company isn't trading, but I've got £50k sitting in it, I'm not drawing a salary and only taking minimum dividends. I've checked with my accountant and this is what they are suggesting"
That would have got different answer to what you wrote in post 1, your vague bit in post 4 where you might be saying that you are "ghosting" your accountant - which probably means you're not using an accountant for whatever reason.

You mention "trial balance of £35k" in post 3, then in post 12 you're talking about borrowing £37k, i.e. £2k more than you claim the company has (revenue & capital)

A few questions:
How much will your company need to pay the taxman this year?
How much will that leave in the company account?
What else are you not telling us (or not making clear)?

I'm ghosting my accountant not because I don't use him but because he wants me to send over my trial balance, sage accounts and bank statements a lot earlier than usual. I usually send this information after I have done all the sage bookeeping and prepared the final accounts myself. This gives me an opportunity to raise a query if my calculations don't match with his. You might think a company not currently trading does not have a few transactions but 8 bank accounts paying monthly interest does generate a fair bit of paperwork. I usually done by now, but its been a busy 4 months period with travelling and job change.

Before you ask me why I even bother even attempting it myself, its because I worked as a part qualified accountant a couple of decades ago. I also worked on building accounting & ledger systems from a developer pov. The accountant is still there to hold my hands.


I actually did not mention trial balance of £35k or that I only had £37k/£35K of reserves, I can assure you it's a bit more than that. Question (and monetary illustration) was based specifically on the amount to be borrowed to show its incremental impact on company as a whole.

As it stands income is from inside IR35 contract so only 2k dividend last and this tax year.

So your questions
How much will your company need to pay the taxman this year? -> Amount is not really relevant but coming from interest receivables
How much will that leave in the company account? -> Company has a 6 figure balance
What else are you not telling us (or not making clear)? -> I think it's pretty much covered, also that I am a strong believer that every penny counts.

[WTFH]

I actually did not mention trial balance of £35k

Then someone hacked your account when they posted:

I'm ghosting them at the moment till I submit trial balances for tax return. It's about £35k.

[css_jay99]

Yes it is, but you can't offset it against CT. I won't even begin to explain why (there used to be a detailed explanation on their website - good luck finding it) but it's based on the definition of a trade association dating back ot the early 1900s.

Then someone hacked your account when they posted:

Error and incorrect/incomplete sentence on my part due to editing. Clearly the sum of trial balance makes no sense to anyone except for the balances of all individual ledgers. I think that is an obvious mistake which you could pull me up on but I doubt anyone on CUK will be calling £35k a warchest to borrow from

[WTFH]

Error and incorrect... Clearly the sum of trial balance makes no sense to anyone except for the balances of all individual ledgers. I think that is an obvious mistake ...

Which is why you should be getting your accountant to do it first, and then you check their figures, rather than the other way around.

As for £35k, if it was in a personal account rather than tied up in the business, then it would be a reasonable archest to borrow from - depending on your burn rate.