Offsetting funds against your mortgage from business account

[chris79]

Right,

To cut a long story short, I'll explain my situation and ask the question as per the title..

I run my own books, do my own accounting, sort everything out myself (pretty much).. The plan is to take enough out the company to live on through my directors fee and dividends, and the remaining funds in the company are there for times when I'm not in work, or if I want to take some time out etc..

Now the situation is my business current account with Barclays pays quite a poor interest rate. It would make more sense for me to use the money sitting there to pay off a portion of my mortgage with it, then if required borrow this money back from my mortgage to put in the account when it's actually required.

The question therefore, am I allowed to do this? Are there any tax implications here? It just seems more sense to use the money better doing this, than leaving it dormant earning a paltry 2-3%.

If the answer is no I can't use the money to do this, then what exactly can I do? Can I invest it elsewhere and what do I need to record in my books (if anything)?

Thanks in advance.

Chris.

[DaveB]

No, you can't do this. It's not your money it is the co.'s money. The only way is to extract the money from the co. legitimately as salary or dividends and pay the mortgage then.

Even if you did do it you would be liable for tax on BIK for the amounts involved.

The best thing you can do is look around for a high interest deposit account fo the co. and stick the money in that.

[chris79]

Cheers, I thought as much.. I just wanted to be sure as I thought it sounded a bit dodgy but all the same if it was legal I would do it (as essentially it would be a circa 5% investment every invoice).

Another question then.. if I was to stick a big chunk of cash into a business savings account and it then gets paid a yearly interest award, I take it this is tax free to the business? I then end up paying corporation tax, or PAYE once it comes through either channel to my own account?

[DaveB]

Cheers, I thought as much.. I just wanted to be sure as I thought it sounded a bit dodgy but all the same if it was legal I would do it (as essentially it would be a circa 5% investment every invoice).

Another question then.. if I was to stick a big chunk of cash into a business savings account and it then gets paid a yearly interest award, I take it this is tax free to the business? I then end up paying corporation tax, or PAYE once it comes through either channel to my own account?

You'll pay CT on the interest as it is part of your companys' profits. You'll pay PAYE on whatever salary you are being paid by the co. The two are not connected.

[chris79]

You'll pay CT on the interest as it is part of your companys' profits. You'll pay PAYE on whatever salary you are being paid by the co. The two are not connected.

Yes but surely if I never paid a dividend and drained the account to £0 through a salary, then ultimately this 'interest' has been paid to me, and I've then paid tax on it indirectly..

Are you saying that at the point I receive an interest payment from Bank X, I need to instantly pay corp tax on it?

[VectraMan]

Yes but surely if I never paid a dividend and drained the account to £0 through a salary, then ultimately this 'interest' has been paid to me, and I've then paid tax on it indirectly..

You're correct. If you pay all the company's money out as salary, including bank interest, there won't be any profit and no CT. But it would be a dumb thing to do as you'd pay more tax on it than if you declared it as profit, paid the CT and paid the remainder as a dividend.

CT is nothing to do with whether you pay yourself the money or not. At the end of each company year you work out the profit, and 20% of that is then due as CT (9 months later). It doesn't matter if you pay the remaining 80% as a dividend, or leave it all in the company.

[chris79]

You're correct. If you pay all the company's money out as salary, including bank interest, there won't be any profit and no CT. But it would be a dumb thing to do as you'd pay more tax on it than if you declared it as profit, paid the CT and paid the remainder as a dividend.

CT is nothing to do with whether you pay yourself the money or not. At the end of each company year you work out the profit, and 20% of that is then due as CT (9 months later). It doesn't matter if you pay the remaining 80% as a dividend, or leave it all in the company.

Wait a sec, maybe I've got the wrong end of the stick here, but can I just confirm something?

I've not yet reached a full financial year in my company, but is it the case that I should be paying CT on all company profits at the end of the company financial year? I thought I only paid CT on anything paid out in the form of a dividend...

What if I choose to just keep all the profits in the business bank account and do nothing, I take it I don't pay any CT as long as its idle sitting with the business?

[VectraMan]

What if I choose to just keep all the profits in the business bank account and do nothing, I take it I don't pay any CT as long as its idle sitting with the business?

You've got the wrong end of the stick. You pay CT on the profits at the end of the year, regardless of whether you pay the rest as dividends or leave it in the company.

You'll only pay the CT once though, so money left in the company won't count towards next year's profits. However interest earned on money left in the company will count towards next year's profits.

[chris79]

You've got the wrong end of the stick. You pay CT on the profits at the end of the year, regardless of whether you pay the rest as dividends or leave it in the company.

You'll only pay the CT once though, so money left in the company won't count towards next year's profits. However interest earned on money left in the company will count towards next year's profits.

Right I'm with you, I thought I only paid CT on any dividends paid out, I didn't realise that if I just left profit in my account it had to have CT tax paid at the end of the company year.

What happens if I decide to pay out a dividend next year, from this years profits, I take it I just pay the whole dividend but without any CT deductions as this has already been paid?

[TheFaQQer]

No, you can't do this. It's not your money it is the co.'s money. The only way is to extract the money from the co. legitimately as salary or dividends and pay the mortgage then.

Even if you did do it you would be liable for tax on BIK for the amounts involved.

The best thing you can do is look around for a high interest deposit account fo the co. and stick the money in that.

You could take a loan from the company, for up to £5k but it needs to be repaid before year end. Don't think that incurs any BIK, as long as it's repaid before the end of the company trading year.