Loan vs dividends

[wattaj]

but that's in the past. So what will it be for this year??? I'd guess 6%, but plan on base rate as the minimum.

The official rate for 2023 is 2.25% as per the link above.

[wattaj]

Couldn't find exactly what I was looking for in the forums so don't shoot me down if I missed it.

I have a number of home improvements that need undertaking on my two properties. I was planning on funding these by payment of dividends, but there are two downsides:

1. 8.75% interest on dividends (basic rate)
2. 33.75% higher rate tax would be breached

So I got to thinking, wouldn't it be a smarter move to draw up a commercial/beneficial loan from my Ltd company to myself, giving:

1. A much lower rate, think it's around 2.5% currently
2. A longer payment schedule
3. The ability to take more dividends for 'other purposes'

Also, would the loan to me, lower the company's Corporation Tax liability?

Seems like a no-brainer here. What am I missing?

Thanks

As per Maslins reply above, loans are NOT something to be entered into lightly, or without having done sufficient research (Beneficial Loans). I have arranged a number of such loans over the years, but I have been bitten once when the beneficiary did not repay the full amount. That amount had to be written off in the accounts and still annoys me. Still, lesson learned.

I am currently running such a loan and expect it to run for about 3 to 4 years. I will pay the S.455 charge when it becomes due and then reclaim that amount when the loan is fully repaid... there will be a delay in receiving this repayment, but the saving in interest payments makes this arrangement worthwhile.

This works for me. It might not work for you. Check with your accountant and DO NOT start the process without having done so.

[Lance]

As per Maslins reply above, loans are NOT something to be entered into lightly, or without having done sufficient research (Beneficial Loans). I have arranged a number of such loans over the years, but I have been bitten once when the beneficiary did not repay the full amount. That amount had to be written off in the accounts and still annoys me. Still, lesson learned.

I am currently running such a loan and expect it to run for about 3 to 4 years. I will pay the S.455 charge when it becomes due and then reclaim that amount when the loan is fully repaid... there will be a delay in receiving this repayment, but the saving in interest payments makes this arrangement worthwhile.

This works for me. It might not work for you. Check with your accountant and DO NOT start the process without having done so.

I never knew that S.455 payments were reclaimable. I thought is was a totally punitive charge.

[northernladuk]

I never knew that S.455 payments were reclaimable. I thought is was a totally punitive charge.

https://www.oneaccounting.co.uk/news...s-loan-repaid/

[wattaj]

I never knew that S.455 payments were reclaimable. I thought is was a totally punitive charge.

There is a lag in the return of the funds so there will be an "opportunity cost", but it is repaid.

[bmg2g]

I usually go for loans because they're often easier to understand and typically have better interest rates. I needed some money for home stuff once, too. I used <mod snip> a bunch of scammers who edit posts to add links to fraudulent companies</mod snip>. It was easy because I just used my phone, and there was no complicated paperwork. Everything was quick and easy to understand. They showed me different loan choices and clearly stated how much I'd have to pay back and when.

[northernladuk]

I usually go for loans because they're often easier to understand and typically have better interest rates.

Which is totally at odds with what one of our respected accountants has said and has been proven by the raft of people then posting about not fully understanding loans.

How a loan is easier to understand than a dividend is beyond me.

[wattaj]

I usually go for loans because they're often easier to understand and typically have better interest rates.

Can you better explain your thinking around this decision?

Dividends are far more straight forward to manage and account for than loans that extend over the company YE + 9 mths IMHO... and I do both where required.

[Lance]

I usually go for loans because they're often easier to understand and typically have better interest rates.

if less than £10k then. As soon as you have to start calculating interest it gets complicated (one reason accountants don't like them IMO).
Unless someone has a director loan interest calculator I've not seen.