Directors loan - how to?

[chris79]

I want to borrow £5k from my company business account, I also run my own books (Sage instant accounts). Whats the process here, do I just transfer 5k to my own personal account and mark it as a 'payment' in sage? What do I do when paying it back - anyone done this before?

Cheers.

[Ardesco]

Directors loan can be interest free but has to be paid back within two years if I remember what my accountant told me correctly.

[dude69]

Directors loan can be interest free but has to be paid back within two years if I remember what my accountant told me correctly.

I don't think that's true at all. There's no logical distinction between a two year loan repaid and then taken out again, and just a running loan. I also cannot find any trace of this online.

The key point is that the balance of the loan must NEVER EVER exceed £5k (even for one day), otherwise you have to pay tax on it (there's a fair few documents discussing loans online - you can also have qualifying loans as well, to exceed £5k, but for our purposes it's simplest just to consider that you can have £5k max).

This shouldn't be too hard to arrange, given that you lend yourself £5k, and it's very easy to have the company owe you money (for expense reimbursement), but quite hard to accidentally take any more.

A £5k running loan is a good idea...

[Ardesco]

I don't think that's true at all. There's no logical distinction between a two year loan repaid and then taken out again, and just a running loan. I also cannot find any trace of this online.

The key point is that the balance of the loan must NEVER EVER exceed £5k (even for one day), otherwise you have to pay tax on it (there's a fair few documents discussing loans online - you can also have qualifying loans as well, to exceed £5k, but for our purposes it's simplest just to consider that you can have £5k max).

This shouldn't be too hard to arrange, given that you lend yourself £5k, and it's very easy to have the company owe you money (for expense reimbursement), but quite hard to accidentally take any more.

A £5k running loan is a good idea...

Probably different advice from different accountants. I was advised to show that it was paid back to prove that I am not treating it as an extra £5000 tax free money I can keep hold of for no reason.

[dude69]

I want to borrow £5k from my company business account, I also run my own books (Sage instant accounts). Whats the process here, do I just transfer 5k to my own personal account and mark it as a 'payment' in sage? What do I do when paying it back - anyone done this before?

Cheers.

Just take the money out, and mark it on your balance sheet at the end of the year as a long-term asset. Balances out nicely.

[dude69]

Probably different advice from different accountants. I was advised to show that it was paid back to prove that I am not treating it as an extra £5000 tax free money I can keep hold of for no reason.

Hmm, but I thought that was the point - you CAN have £5k tax-free money to keep hold of for no reason, but no more.

I see that they are hypothesising that HMRC would want to see intent to repay, but I don't see support for that in the HMRC guidance.

Small loans:
http://www.hmrc.gov.uk/employers/ebi...l-loans-08.htm
The benefit of a beneficial loan is not chargeable to tax or liable for Class 1A NICs if the total balance outstanding on all loans does not exceed £5,000 throughout the tax year

But the tax liability arises only if the loan is written off, for which see
http://www.hmrc.gov.uk/manuals/eimanual/EIM01490.htm
http://www.hmrc.gov.uk/manuals/eimanual/EIM21740.htm
etc.

It seems hard to imply a lack of intent to repay, simply because the loan has not been repaid for two years. Generally, HMRC doesn't care what you do with the £5k, and mentions examples such as holiday loans
http://www.hmrc.gov.uk/manuals/eimanual/EIM26314.htm
home improvement loans car loans etc
http://www.hmrc.gov.uk/manuals/eimanual/eim26142.htm

[kookachoo]

I was talking to my accountant the other day about doing this. The advised me that they will just move it to the Directors Current Account and then want to see it repayed after a period (I believe they quoted me 9 months - but I might be mistaken, we had a long conversation). But then of course you can repay it and take out another one.

From what I can tell we all agree on the amount and the fact you can do it - perhaps give your accountant a call to see what they will support in the summary of your end of year accounts.

[Archangel]

The key point is that the balance of the loan must NEVER EVER exceed £5k (even for one day), otherwise you have to pay tax on it (there's a fair few documents discussing loans online - you can also have qualifying loans as well, to exceed £5k, but for our purposes it's simplest just to consider that you can have £5k max).

I borrowed 10k from the company for a few weeks, when the IR checked my books they asked about it, I told them it was a directors loan and because it was repaid in the same company year it was no problem. I think the 5k limit is only for going over a company yearend.

[NotAllThere]

The limit is £5K at anyone time. ( Otherwise, you should have a BIC - perhaps the BIC on £10K for a few weeks is so negligible that they didn't bother. Or perhaps they just don't know the law/rules ). The loan must be paid off within 9 months of company year end.

I generally took the loan, then paid it off against a divvy. Just to help my (personal) tax flow.

[VectraMan]

As I read it, it's a BIK, so a personal tax issue. Somebody looking at your company books wouldn't find a problem with a £10K loan, as it's not a company issue. But they might alert the right department to your personal tax liability.