Directors loan of £250,000

**northernladuk** · 27 September 2010, 22:59

Are you asking so you can help him or are you asking because you are worried he is shifting his personal funds to avoid them being part of any divorce proceedings?

Normalyl a directors loan is one from the Ltd co TO the director and is tax free up to £5000 as long as it paid back within a year. He can loan himself anything he wants over that but will pay a whopping interest on it so normally makes it pretty unattractive.

Why he would pay 250K in and then loan it back out to himself beats me though unless he is trying to hide personal cash from something or other. Doesn't sound right somehow.

**Mojito** · 27 September 2010, 23:25

Control of flow of funds

Assuming that this is divorce proceedings related....

I think that if he has control of the flow of funds out of the ltd (i.e. sole director) then he'll need a very good reason for needing to keep the company so cash rich. Unless he can convince the divorce judge he has a valid reason then the judge will most likely assume that its a liquid sum for settlement purposes. Regardless of that, the company must now have a value of >£250k so the company will go into the "pot" valued at at least that much.

sorry if I have got hold of the wrong end of the stick.....

**Wanderer** · 28 September 2010, 00:22

Originally posted by wallop79 View Post

If the money is now in the business account how much of it can he "borrow" as I keep finding things on the net about only being able to borrow £5,000. If he suddenly decided to move the money from the business account back into a private account, could he? and if so what financial implications would he forgo? thanks for your help.

What normally happens with small LTD companies is that the company has a load of money and director borrows some money from the company. This could be open to abuse by people taking interest free loans from their companies so there are rules to say that if the company lends a director over 5,000 then the director has to pay tax on it - this is what the director's loans are that you have read about.

What it sounds like in your scenario is that the director has loaned the money to the company, (presumably as an investment in the company). The company can pay back this loan at any time (so long as the company has money to pay him back) and it doesn't incur a tax charge because it's the opposite to the scenario above.

Hope that makes sense.

**Vallah** · 28 September 2010, 09:57

If he's taking money out of the account that he hasn't put in in the first place, then both he and the company will be taxed on it if he doesn't pay it back. If as the above posters says, he's simply withdrawing cash that he's introduced into the company in the past, then there's no problem. Without seeing any accounts (which presumably won't be available yet as the company hasn't traded for very long) it's hard to know what the full picture is.

**wallop79** · 28 September 2010, 10:21

He's put the money into the business with regards to a CSA case against him, and stating that it is needed to keep the business afloat and to pay wages etc., which is a pack of lies, he's traded successfully for 28 years and as soon as the comp. was made limited it suddenly had no money, so he had to use his own personal money to "keep the business afloat". Unfortunately he doesn't have to file his accounts until July 2011.

**doodab** · 28 September 2010, 11:26

Originally posted by wallop79 View Post

He's put the money into the business with regards to a CSA case against him, and stating that it is needed to keep the business afloat and to pay wages etc., which is a pack of lies, he's traded successfully for 28 years and as soon as the comp. was made limited it suddenly had no money, so he had to use his own personal money to "keep the business afloat". Unfortunately he doesn't have to file his accounts until July 2011.

One aspect of being a sole trader is that there is no legal distinction between your money and the businesses money, and you personally are liable for the full debts of the business, which can mean losing your house, car etc if things go wrong. A limited company is a separate legal entity. When you start one the only money the company has is the initial share capital, and the liability of the shareholders is limited to this amount.

If he was a sole trader then what you think of as "his personal money" included the working capital of his business and this plus stock, equipment etc would need to be transferred to the company in order for it to be able to trade. As far as I know there is no reason some or all of the working capital couldn't be provided as a loan from a director, and that seems to be what he is doing here.

You don't say what he did exactly, but if for example he's supplying & installing network equipment & servers on behalf of SMEs then with 2 or 3 jobs on the go at once and clients paying 60-90 days after the invoice goes in then the company would need quite a bit of working capital to fund the gap between paying suppliers and getting paid. Similarly if he has staff or subcontractors who need to be paid before he gets paid the business will need the money to pay them.

As regards taking money out of a company, it can pay you a salary (taxed as in a normal job) and if you have enough retained profit you can pay a dividend (taxed as normal share dividiends, with some extra rules around NI related to IR35). You can also submit business related expenses you have personally incurred, so that the company will repay you. There are quite strict rules about what is allowed.

BTW, to put things in perspective, I'm in a similar situation (i.e. freelance individual rather than a company) in Germany, and even though I don't have staff to pay, I have tens of thousands sitting in my bank account that isn't actually mine.

**Scrag Meister** · 28 September 2010, 11:37

I suspect some decent legal advice would be useful, rather than a forum like this, although there will be useful suggestions.

It probably depends on the agreement between him and his company over the 250k.

Ensure the CSA are aware of his company directorship.

**THEPUMA** · 29 September 2010, 12:58

I think the crucial point for your lawyer to make is that he still has an asset valued at £250K, namely the debt owed to him by the company. He may argue that the debt is unrealisable but I think the onus would be on him to demonstrate that.

Puma

**ASB** · 29 September 2010, 13:43

Originally posted by wallop79 View Post

He's put the money into the business with regards to a CSA case against him, and stating that it is needed to keep the business afloat and to pay wages etc., which is a pack of lies, he's traded successfully for 28 years and as soon as the comp. was made limited it suddenly had no money, so he had to use his own personal money to "keep the business afloat". Unfortunately he doesn't have to file his accounts until July 2011.

There are a number of issuesFrom a point of view of a divorce settlement (i.e. explicity NOT the CSA) this is still an asset of "his". It is relevant in terms of the form E and where you may negotiate settlement.

From a point of view of the CSA it is largely an irrelevance. CSA assessment is based on income and payment based on % of that in accordance with number, age and the living arrangements of children etc.

The issue you will probably face with the CSA is what his assessable income is. You can request that dividends are included, you have soem other options related to variation. A problem may well be that by leaving funds in the company (and I suspect this may well be his plan) he doesn't need to pay much in the way of salary or dividends. He can live off the loan repayments until such point as the children are no longer eligible for CSA support. [He would have been able to do this anyway even without making the loan to the company - simply take no income = No CSA - and live off that capital].

However, you are entitled to apply for a variation to the CSA, this may or may not be successful.

Directors loan of £250,000