Director's loan + Offset mortgage = low interest?

[minstrel]

There is a flaw here. If you took £80k and paid £20k (25% of 80K) tax on account you would only have £80k not £100k to use. Unless you repaid the 20k yourself to pay the tax bill, and then it works. If you also took the 20K, and did not repay it to the company then the directors loan would be £100k and the tax on account would then be £25k.

I have a client who was supposed to do this, but when the time came, there was enough money in the company to pay the money on account, so he did not repay his directors loan, and ended up paying extra tax! I had change my paperwork as what we agreed was not what happened.

Surely the £20k CT is payable by the company not the individual? If I have £100k in company I can loan £80k and still have £20k left for the tax.

I'm basically saying you can only take 80% of available funds as you need to keep back 20% to pay CT (20% being 25% of 80%). This has the effect of decreasing the effective interest on the £100k.

Having said that I'm not planning on paying any of the CT. My strategy is to just set up a new Ltd. I can't see these optimal conditions lasting for more than a year or two.

[sage@reillymcmordie]

Director's loan

If only life was that simple...
Any loan given to a director/participator is subject to a 25% tax. It is only repaid by HMRC when the loan is repaid. You are in effect giving the Inland Revenue an interest free loan. Furthermore a taxable benefit arises on employed related loans to directors or employees earning £8,500 or more per year, on the difference between the interest paid and the "official rate" (currently at 6.25%). The B.I.K is also subject to class 1A national insurance.

[minstrel]

If only life was that simple...
Any loan given to a director/participator is subject to a 25% tax. It is only repaid by HMRC when the loan is repaid. You are in effect giving the Inland Revenue an interest free loan. Furthermore a taxable benefit arises on employed related loans to directors or employees earning £8,500 or more per year, on the difference between the interest paid and the "official rate" (currently at 6.25%). The B.I.K is also subject to class 1A national insurance.

Have you read the rest of the thread?

The whole point is that interest rates are close to zero now so giving it interest free to HMRC isn't that bad an option. The official rate is 4.75% not 6.25% and the BIK NI contributions only occur if you don't pay it interest at the official rate.

[Olly]

Furthermore a taxable benefit arises on employed related loans to directors or employees earning £8,500 or more per year, on the difference between the interest paid and the "official rate" (currently at 6.25%). The B.I.K is also subject to class 1A national insurance.

Wrooooooooooong.......it's 4.75% .....and as the thread states right from the beginning I have every intention to pay that.

..actually maybe it would be interesting for you to read it

P.S. Did see the post above but thought I'd reiterate.

[sage@reillymcmordie]

Yes. It's true that the official rate changed to 4.75% from 1st March 2009.
And yes its true that there is no BIK when you pay interest back to the company at this rate.

My point is that you will have to pay over a premium of 25% (S.419)
on any loan that you receive. This affects your cash flow and the potential to use the cash.

The interest that you pay to the company is pregnant with potential tax.