Directors Loan (warning - potential newbie question!)

[Lewis]

Why is it recommended not to take one?

cheers.

I don't actually know and in fact I have taken them before.

[Lewis]

Presumably there is some BIK implication to this?

Not if less than £5K and not there at year end. Discussed on other threads before ...

[Platypus]

upto £5k

My accountant said not to exceed £5k. He reminded me that sometimes when doing the accounts he may find items which the company purchased which are not allowable therefore he just transfers that item into the DLA rather than have it treated as BIK. Therefore his advice was to leave some headroom in the DLA e.g. by only moving say £4700 to my personal account and leaving a notional £300 in the DLA "just in case".

HTH

[malvolio]

Well from what I've read so far, it's not classed by the tax man as a BIK. What we choose to do with the loan is surely up to the individual in this case?

How can it be a BIK, since you have to return the whole amount? The best you can do with it is to earn some interest on your own money, which is taxable anyway. The £5k limit is a convention, not a rule, and merely means the gain from the interest you're not paying is trivial. Otherwise you can take a loan for however much you want for as long as you want, provided you are paying commercial (i.e. aligned to the prevailing bank rate) interest on it

As for taking it back out annually - you'll have to stop doing that one year, won't you?

It's a handy way of getting cheap cash in advance, that's all. It's not a longer-term solution to anything.

[r0bly0ns]

Yep, my account has only ever advised us to use it for borrowing in the short term, never for long term things.


e.g. take a directors loan of 3k just before year end and then pay it back once the accounts have been finalised, all outstanding invoices have been paid and a dividend has been issued.

[chris79]

My accountant said not to exceed £5k. He reminded me that sometimes when doing the accounts he may find items which the company purchased which are not allowable therefore he just transfers that item into the DLA rather than have it treated as BIK. Therefore his advice was to leave some headroom in the DLA e.g. by only moving say £4700 to my personal account and leaving a notional £300 in the DLA "just in case".

HTH

That's good advice, thanks!

[chris79]

Just on a side note, I've started accumulating a large amount of money in my Business current account. Can anyone recommend me a good Business savings account to keep this surplus in? Something I can use online etc, I'm currently with Barclays but their current account only pays a paltry 2.x% or so.

[THEPUMA]

How can it be a BIK, since you have to return the whole amount? The best you can do with it is to earn some interest on your own money, which is taxable anyway. The £5k limit is a convention, not a rule, and merely means the gain from the interest you're not paying is trivial. Otherwise you can take a loan for however much you want for as long as you want, provided you are paying commercial (i.e. aligned to the prevailing bank rate) interest on it

As for taking it back out annually - you'll have to stop doing that one year, won't you?

It's a handy way of getting cheap cash in advance, that's all. It's not a longer-term solution to anything.

More nonsense from the Malvolio school of tax!

It could be a BIK because you are receiving an interest-free loan. The fact that you may pay tax on the interest received is irrelevant. You may well not receive interest on the moey if you spend it.

The £5K limit is statutory not by convention.

I find it far more offensive when respected posters post their not-very-well-educated guesses as fact when they are incorrect than someone who asks a stupid question which you can choose to ignore.

[Lewis]

Just on a side note, I've started accumulating a large amount of money in my Business current account. Can anyone recommend me a good Business savings account to keep this surplus in? Something I can use online etc, I'm currently with Barclays but their current account only pays a paltry 2.x% or so.

Cater Allen have good rates. I get over 4% from my business current account (their Reserve account). www.caterallen.co.uk

[Lewis]

Here is the £5K rule

http://www.hmrc.gov.uk/employers/ebi...l-loans-08.htm