Directors Loan account

[ASB]

I contacted my accountants and they say I have no more tax to pay.

So presumably it is a credit balance (i.e. your co owes you 45k) made up from dividends declared over they years but not actually yet paid out.

Though is you can have an overdrawn account of 45k and not have some tax to pay if it is not paid off I'd love to know how.

[gingerjedi]

There is a school of thought which says an overdrawn directors account is a red rag to a tax man so paying it off in the current year may be wise.

My understanding:-

y/e 31/03/08. There is a loan outstanding of 4k.
There is no repayment by 31/12/08. The company has to pay 1k tax [not sure how it actually pays it, but I imagine it is on the CT return somewhere].

Then in the next year the loan happens to be paid off, say on 1/2/09. The company is now entitled to the 1k tax back. Again I'm not sure of the mechanics of how it actually happens.

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Of course I believe the following could happen instead:-

y/e 31/03/08 Loan outstanding of 4k.

On the 30/12/08 another loan of 4k is made. On the 31/12/08 the original loan of 4k is paid off. Now there is no loan outstanding for > 9 months and tax is not due on the original loan. There is a view that this doesn't work and there is a view that it does. I don't know which prevails, but there is case law* that suggestsunless a physical transaction (or two in this case) actually happens (i.e. the money really moves) then it is ineffective. [i.e. simply journalising it would not be good enough].

*Can't remember the details, but there was a case related to somebody arguing there was no BIK on a directors loan because the interest had been debited to the loan, thus the official interest rate was paid.

Thanks, that has made it clearer in my mind.

Going back to what I originally said, I didn’t take the loan until May 08' so the loan doesn't show on my accounts. I guess its good practice to pay off any loan before the accounts are due so that any money you borrow within the year never shows, it only becomes an issue if you carry a loan from one financial year to the next.

I’ll just borrow 4k from the wife pay off the loan then borrow it back again when the books are done.

[ASB]

Thanks, that has made it clearer in my mind.

Going back to what I originally said, I didn’t take the loan until May 08' so the loan doesn't show on my accounts. I guess its good practice to pay off any loan before the accounts are due so that any money you borrow within the year never shows, it only becomes an issue if you carry a loan from one financial year to the next.

I’ll just borrow 4k from the wife pay off the loan then borrow it back again when the books are done.

I just added this to the original reply, it crossed in the ether so to speak:-

"Edit: Handy guide. In your case I think because you are below the 5k de minimus that might take the s419 tax out of it.

http://www.isis-business.eu/solution...n-accounts.pdf "

[Jubber]

I contacted my accountants and they say I have no more tax to pay.

I'm interested as well. So you have 'lent' yourself the money rather than declared it as a dividend?

Now maybe I'm missing something here, but you will have to pay the loan back to the company? Are your 'accountants' on the Isle of Man by any chance?