Directors Loan

[kirk]

Say the ltd. co had 5k in the bank, that 5k covered CT at the end of the year. Can the director legally take a 5k loan from the co account (knowing that the next invoice will more than cover the 5k CT liable at the end of the year) ? ? ?

[minstrel]

I don't know any legal reason why you couldn't do it (although that doesn't mean there isn't one).

Distributing dividends before the company has made the profit is a definite no, but I don't think the same applies to Director loans.

As long as you pay the CT when you have to I don't think it's a problem.

Having said that, I wouldn't advise it unless you are desperate - in fact I'd only use a Director loan in general under "exceptional" circumstances and only on a short term basis.

If you were to do it, I would pay the loan back and make a dividend distribution as soon as your next invoice is paid.

[tim123]

I don't know if you used 5K as an example for a reason, but there is a reason why this is the limit you should take.

5K is the maximum that you can borrow from the company without incurring a tax BiK for the interest that you are saving. So you can borrow up to 5K with no problem but beyond that you have a personal tax liability to sort out.

tim

[malvolio]

I get this terible feeling of deja vu...

In reply to a slightly earlier thread on this subject,

That is actually a bit of an urban myth. The concept of a director's loan is that it goes from the director to the company, not the other way round!

In reality, Hector will turn a blind eye to small amounts loaned in the opposite direction providing they're paid back in short order (<£5k pa and year end are the accpetable but unofficial limits) but strictly speaking they should be treated as BIKs or as part of salary. Certainly they should be considered as exceptional events, not regular ones.