Director loans

[xoggoth]

It always seems to be accepted wisdom on here that if a director's loan account does not exceed £5k in year it is not taxable. But there is a question on directors' loans in the CT form so I had a look and found this:

http://www.taxationweb.co.uk/tax-art...cipartors.html

Can't see anything about the loan being under £5k before being potentially taxable. It is if repaid within 9 months but you still have to waste time declaring it in a millon places, CT form, P11D etc.

This appears to be something very recent, this consultation (ha aha) is dated November 2009.

http://www.berr.gov.uk/files/file53630.pdf

Anyone any ideas on this?

[Danbro]

It always seems to be accepted wisdom on here that if a director's loan account does not exceed £5k in year it is not taxable. But there is a question on directors' loans in the CT form so I had a look and found this:

http://www.taxationweb.co.uk/tax-art...cipartors.html

Can't see anything about the loan being under £5k before being potentially taxable. It is if repaid within 9 months but you still have to waste time declaring it in a millon places, CT form, P11D etc.

This appears to be something very recent:

http://www.berr.gov.uk/files/file53630.pdf

Anyone any ideas on this?

When I give advice I always try and split the 2 issues here

1) Benefit in Kind - If loan less than £5k no taxable benefit, so no 12.8% class 1a and no income tax at 20 / 40% on cash equivalent of loan, ie interest at 4.75%

2) S419 charge - Effectively any loan outstanding 9m and 1 day attracts 25% ct charge, this is just the same amount of tax would have been due if a dividend was taken, no coincidence there.

ON reading the last article, this is more a disclosure issue as I see it, I always disclose directors loans over £1k, including balance at start, maximum in year and balance at the end.

Cheers

Neil

[xoggoth]

Thanks Neil. Quite why a loan should attract corporation tax, even if it is eventually paid back, is beyond me. CT has already been paid on it.

[ASB]

Thanks Neil. Quite why a loan should attract corporation tax, even if it is eventually paid back, is beyond me. CT has already been paid on it.

You get the CT back when the loan is paid back.

[DaveB]

IIRC the 5k limit relates to the maximum amount allowable as a directors loan. Anything over this is technically unlawfull but requires a complaint from shareholders for anyone to do anything about it. In practice for small businesses / one man bands this never happens so it is never an issue.

ICBW, IANAA.

[gingerjedi]

I had a 4k directors loan taken in May 2008 which has to be repaid Dec 2009, I've already paid back 2k but had to borrow another 2k from the wife so it shows on the books as repaid by the deadline.

I was advised I can take another directors loan in the new year to pay her back, it seems like a pointless paper exercise only to keep Hector happy.

[ASB]

I had a 4k directors loan taken in May 2008 which has to be repaid Dec 2009, I've already paid back 2k but had to borrow another 2k from the wife so it shows on the books as repaid by the deadline.

I was advised I can take another directors loan in the new year to pay her back, it seems like a pointless paper exercise only to keep Hector happy.

Check with your accountant about when you take the new loan. HMRC can disallow the payment of "back to back" arrangements and treat it all as the same loan.

[xoggoth]

This HMRC link explains it all very simply.

http://www.hmrc.gov.uk/ct/managing/director-loan.htm

Apart from why the idiotic rule exists at all of course.

[gingerjedi]

Check with your accountant about when you take the new loan. HMRC can disallow the payment of "back to back" arrangements and treat it all as the same loan.

It was my accountant that said I could do that, should HMRC decide it is a continuous loan they can tax me and then I can reclaim it once the loan is repaid.

[Joe Black]

"If you’re a company director or ‘participator’ and take money out of your company that's not a salary or a dividend - over and above any money you’ve put in - you’re classed as having received the benefit of a director’s loan."

It would be nice to think in Belgium it was so simple, having stumped up the full €18,600 startup - as opposed to the usual €6,200 (two directors), or €12,400 (single director) - but according to my accountant here, we're not even meant to touch that.

God I envy you guys...