How to make the most from money in company bank account?

[THEPUMA]

PLease can we have a think about what the downsides are?
I'm just having a really hard time getting over the fact that many/most contractors of which there are 100's of thousands in the UK probaly don't use this approach and yet have a fair balance in their Ltd's accounts.
What's the worst that could happen if HMRC dont' like it?
You'd have to pay interest to your Ltd on the company's money at their standard rate (4 something %)?
Anything else?

If it was held to be a director's loan, there are 2 downsides. Firstly, there would be a benefit-in-kind equivalent to 4% of the average balance per tax year. You would pay tax on this at your marginal tax rate and the company would pay Class 1a NIC.

Secondly, there would be a s419 charge (or whatever they call them these days) of 25% of the increase in the loan during the year which would be payable along with your corporation tax. As the loan reduces, 25% of the repayment would be refunded (9 months after the year in which the reduction in the loan took place).

Puma

[THEPUMA]

Also, the mortgage lender may not like it if they found out about it. My best guess is that they would not allow monies to continue to be ofset but would be unlikely to do anything retrospectively (assuming it was contrary to their T&Cs in the first place).

Puma

[moorfield]

Most offset mortgage providers will offer a number of accounts which can be offset against the mortgage so I would ringfence one of them for company monies so that it doesn't get mixed up with personal monies.

Mine don't (Santander e-mortgage) - you would still have to physically transfer money deposited in their linked current/savings account (where it's earning albeit small amounts of interest) to the mortgage account. Doing that would be a no-no presumeably?

[THEPUMA]

It's not ideal but I don't think it is a dealbreaker. The deed of trust documentation woul have to be carefully worded and you would have to keep very clear records detailing how much cash the company had offset.

Puma

[Robot]

Ok - If HMR&C accept it. Wouldn't they then try and treat the whole thing as a BIK. i.e. you are getting a benefit from company funds as the director is saving interest on his/her personal debt ?

[Olly]

Ok - If HMR&C accept it. Wouldn't they then try and treat the whole thing as a BIK. i.e. you are getting a benefit from company funds as the director is saving interest on his/her personal debt ?

This is the whole point I can't get over too.

Once the Is are dotted and the Ts crossed then at the end of the day you've personally benefitted.
This has never been investigated by HMRC or approved so we don't KNOW it's ok but that aside, the benefits are huge. I'd essentially have no mortgage to pay!

[moorfield]

but that aside, the benefits are huge. I'd essentially have no mortgage to pay!

Are they really? Have you done the maths?

In my case a spare £50k would save me circa £650/year interest on the offset mortgage. Is that worth the pfaff of organising
deeds of trust and the risk of an HMRC investigation?
I'm not sure it is.

And I'm not "paying off" the mortgage. That spare £50k still belongs to my ltdco and would presumeably have to be returned at some point. To properly pay off the mortgage that money IMO would still need to be extracted from my ltdco to me via salary / divis etc.

[THEPUMA]

This is the whole point I can't get over too.

Once the Is are dotted and the Ts crossed then at the end of the day you've personally benefitted.
This has never been investigated by HMRC or approved so we don't KNOW it's ok but that aside, the benefits are huge. I'd essentially have no mortgage to pay!

There is a personal benefit but there are many ways someone can personally benefit from company funds without a tax liability. In this case I simply don't believe there is a taxing mechanism to enable HMRC to levy any tax.

I guess if you wanted to you could ask HMRC's opinion before implementation.

[Olly]

There is a personal benefit but there are many ways someone can personally benefit from company funds without a tax liability. In this case I simply don't believe there is a taxing mechanism to enable HMRC to levy any tax.

I guess if you wanted to you could ask HMRC's opinion before implementation.

Hmm...you're right I could just ask. Just would be a bit worried that might trigger an investigation. I've got nothing to hide but I could really do without it just now.

[Olly]

Are they really? Have you done the maths?

In my case a spare £50k would save me circa £650/year interest on the offset mortgage. Is that worth the pfaff of organising
deeds of trust and the risk of an HMRC investigation?
I'm not sure it is.

And I'm not "paying off" the mortgage. That spare £50k still belongs to my ltdco and would presumeably have to be returned at some point. To properly pay off the mortgage that money IMO would still need to be extracted from my ltdco to me via salary / divis etc.

well we wouldn't be talking 50K, probably more like 150. Offsets are what, about, 3.5% let's say. That's £5250 saving a year