Company Reserves.

[THEPUMA]

No because it isn't a director's loan. The company is depositing its money into your account. There is a subtle but crucial difference. So there is no benefit-in-kind and no s419 charge.

[Olly]

No because it isn't a director's loan. The company is depositing its money into your account. There is a subtle but crucial difference. So there is no benefit-in-kind and no s419 charge.

...is your reply to my post?
I have done exactly what I stated - borrowed money from company over the 5K for around 5 months and my accounts, Quay, told me all I needed to do to square things away was pay it back with interest at HMRC rate.

S419 didn't come into play for me as I paid it back pronto and within the tax yr.

As far as the company choosing to deposit its money in your account or under the bed or whatever....that sounds about as crooked as it comes!!

Please provide a little more detail and I'll pose the question direct to HMRC.

[THEPUMA]

...is your reply to my post?
I have done exactly what I stated - borrowed money from company over the 5K for around 5 months and my accounts, Quay, told me all I needed to do to square things away was pay it back with interest at HMRC rate.

S419 didn't come into play for me as I paid it back pronto and within the tax yr.

As far as the company choosing to deposit its money in your account or under the bed or whatever....that sounds about as crooked as it comes!!

Please provide a little more detail and I'll pose the question direct to HMRC.

Olly

Quay were quite correct to advise you in the way they did. But your transaction was different to that which I am describing.

I am quite sure that HMRC will tell you this is not possible, but then I am equally sure that they would advise many contractors that they are caught by IR35 when in fact they are not.

There is no question of crookedness here. There is simply a transaction which has certain tax ramifications.

In fact, the only legal issue is that directors' loans exceeding £5K are strictly speaking illegal under company law. But in these circumstances, this is about as close as you can get to a "victimeless crime" assuming there is never any risk of creditors not getting paid. I should reiterate though, that in the transaction I describe there is no director's loan so this is not an issue.

In fact, there is a perfectly legitimate reason why a company may decide to place money on deposit in an offset account. The alternative is to put it in a company savings account. Most savings accounts are paying little or no interest so the amount of interest foregone is minimal whereas the security of the deposit is substantially improved, particularly if the amounts involved exceed the Government's guarantee.

PUMA

[Olly]

Ok I'm all ears I'll run is past Quay and HMRC.

I totally understand it's not a loan (on paper at least).

Please can you outline in a bit more detail what form the document specifying the company is simply using your bank account should take and how it could be justified. The protection limit won't work for me as we're talking <100K. In addition I've just shifted to Scottish Widows at 2% from Cater Allen so my Ltd would be loosing money by putting it in my mortgage offset account.

On a little aside. Many of us have decent chunks in our company account.s and are aware of offset mortgages. This question has come up many timesand the answer has been "Nope". Accountants have written (poor) articles on it yet this is the first time I've heard someone say it's all above board to use company money in this way (and presumably not pay a single penny to HMRC or in interest to Ltd)....strange

[Coalman]

Ok I'm all ears I'll run is past Quay and HMRC.

I totally understand it's not a loan (on paper at least).

Please can you outline in a bit more detail what form the document specifying the company is simply using your bank account should take and how it could be justified. The protection limit won't work for me as we're talking <100K. In addition I've just shifted to Scottish Widows at 2% from Cater Allen so my Ltd would be loosing money by putting it in my mortgage offset account.

On a little aside. Many of us have decent chunks in our company account.s and are aware of offset mortgages. This question has come up many timesand the answer has been "Nope". Accountants have written (poor) articles on it yet this is the first time I've heard someone say it's all above board to use company money in this way (and presumably not pay a single penny to HMRC or in interest to Ltd)....strange

Quite agree with Olly, but if it can be done legally I am very interested as well. THEPUMA - could you forward details to me as well (either post or by PM) and I'll run it by my accountant - cheers.

[TheFaQQer]

In fact, there is a perfectly legitimate reason why a company may decide to place money on deposit in an offset account. The alternative is to put it in a company savings account. Most savings accounts are paying little or no interest so the amount of interest foregone is minimal whereas the security of the deposit is substantially improved, particularly if the amounts involved exceed the Government's guarantee.

So, you still have to pay the company interest on the money. And the company then has to pay tax on the interest.

So where is the benefit? Is it just that you have a lower mortgage so you are paying less interest to the banks, since the total amount owed would be the same (some to the company, some to the bank)?

[THEPUMA]

Olly

You are correct. Most accountants say it is not possible. I suspect that is the response you will get from Quay and HMRC.

The protection argument does still work, albeit to a lesser extent as there will still be a lead time while you wait for the refund to be made and who knows whether the guarantee will be honoured if one of the big boys goes bust. Even if there was just a substantial delay, you wouldn't want to be unable to make your corporation tax payment on time, would you?

The fact that you are foregoing 2% interest may be justifiable depending upon your assessment of the risk.

In terms of the advice you have previously read from other accountants, perhaps they haven't thought of doing it this way. Suffice to say I am a qualified Chartered Accountant and qualified with the Institute of Tax. I am a principal (the LLP equivalent of a partner) in a large firm of accountants. I have had an opinion on this specific matter from a partner in another firm of accountants who regularly writes technical articles in the tax press. I am also aware of several people operating in this manner who need to be absolutely squeaky clean as any hint of tax evasion would be career-threatening.

The documentation you ought to have in place is a deed of trust and I would also recommend a director's minute outlining the reasoning for doing this (with the appropriate declaration that as a director you have an interest in the outcome of the meeting).

PUMA

[THEPUMA]

So, you still have to pay the company interest on the money. And the company then has to pay tax on the interest.

So where is the benefit? Is it just that you have a lower mortgage so you are paying less interest to the banks, since the total amount owed would be the same (some to the company, some to the bank)?

You don't have to pay the company interest on the money as you have not borrowed it. The company has depositted it in your offset account and is receiving all the interest arising, which happens to be nil.

The fact that you are paying less interest as a consequence is a benefit, but not a taxable one. You could be taxed on interest/assets/cash received from your company, but not on interest you haven't received, even though you have paid less interest.

[TheFaQQer]

So what is the justification for a company doing it?

They are moving from an account paying a low rate of interest to one paying zero rate of interest. I'm not a mathematician by any means, but I think that something is better than nothing.

I just can't see how one can argue that there is a benefit / justification to the company in doing this.

[TheFaQQer]

I am a qualified Chartered Accountant and qualified with the Institute of Tax. I am a principal (the LLP equivalent of a partner) in a large firm of accountants. I have had an opinion on this specific matter from a partner in another firm of accountants who regularly writes technical articles in the tax press. I am also aware of several people operating in this manner who need to be absolutely squeaky clean as any hint of tax evasion would be career-threatening.

Isn't that what the guys who ran all the off-shore schemes said as well