Loan the money in business account

[Wanderer]

This all seems a bit harsh to NLUK.

I agree. Although NLUK takes a somewhat conservative view on tax things he does give some good links to past discussions to support his views.

I don't take director's loans but I did post a question about them which may be worth reading.

Possible options are:

1. Don't take a director's loan at all.

2. Take a loan but never a penny more than £5k and you (and your accountant) will have an easy life as per NLUK's suggestion. No tax, no BIK, no implications. Obviously this is not always the answer people want to hear when they've got £50k burning a hole in the company's pocket and earning 0.000001% interest in one hand and a £50k flexible mortgage debt in the other.

3. Have a board meeting (minuted) where it's decided that the director will take a big director's loan but pay it back with 4% interest before the company year end so you don't have to declare it on the company's tax return or in any case by 9 months after the year end so you don't have to pay the 25% tax charge on it. The company makes a fantastic, low risk (!) return on it's loan and the director gets a loan for a net cost of about 1%. Everyone's a winner including HMRC who get more tax out of the deal! That's got to make good business sense surely?

4. Take a big director's loan but pay it back without interest before the company year end so you don't have to declare it on the company's tax return or by 9 months after the year end so you don't have to pay the 25% tax charge on it. You may then have to pay tax on this as a benefit in kind (eg an interest free loan) and this may be more expensive than paying the interest under option 3 whereby the interest becomes company profit which you withdraw as a dividend. Can't see the attraction of this option.

5. Set up a deed of trust whereby the company puts money in your personal bank account but it's still the company's money as suggested by THEPUMA. Can't comment on this one.

The problem is that there is no straight answer and I don't think anyone is especially happy about the subject. In particular I get annoyed when I read about how HMRC "don't like" anything other than option 1 or 2 and they "may" try and force you to treat the loan as salary. However, I get the impression that if the loans are irregular and you have a formal board meeting to approve them then they can't really argue the point about it.

I also get the impression that the accountants don't want to encourage it because it 1. complicates your tax affairs and 2. there is a danger that the director will spend all the money on high living then default on the loan causing all manner of tulip to hit the fan.

Other info:

HM Revenue & Customs: Directors' loan accounts and Corporation Tax explained
HM Revenue & Customs: Beneficial loan arrangements - official rates

[Old Greg]

2. Take a loan but never a penny more than £5k and you (and your accountant) will have an easy life as per NLUK's suggestion. No tax, no BIK, no implications. Obviously this is not always the answer people want to hear when they've got £50k burning a hole in the company's pocket and earning 0.000001% interest in one hand and a £50k flexible mortgage debt in the other.

I have taken a 5k loan this year because I bought a house. Will pay it back in the new financial year. It's the Company's money and why can' people understand that?

[TheFaQQer]

I have taken a 5k loan this year because I bought a house. Will pay it back in the new financial year. It's the Company's money and why can' people understand that?

can't?

[mudskipper]

I think, anyone who is guessing the answer instead of replying something they know for definite is a disgrace.

If you want an answer from someone who knows for definite, then try paying an accountant rather than asking on a public forum. If someone has taken the trouble to reply in good faith to your post, it seems rather ungrateful to call them "a disgrace". If you take any reply from a public forum and put it into practice without first verifying that advice yourself, then you're asking for trouble.

Much of the time with HMRC's rules, there is no definite answer. Take IR35. Or Christmas parties. Or iPhones vs other smart phones.

[krytonsheep]

Never mix business and pleasure.

WHS. The golden rule is to never lend money to friends or family, regardless of whether it's from a business account or a personal one. If you do, it'll instantly change the relationship you have with that person and will potentially end up in a world of pain.

[Platypus]

All anyone can do on a public forum is post what they know and share experiences. I don't think NLUK did more than that. but he did then back up his post with some good links.

No need to be so harsh!

[Pondlife]

I think, anyone who is guessing the answer instead of replying something they know for definite is a disgrace.

This is a wind up right?

The advice you get on here is worth exactly what you've paid for it. It's free so be grateful for what you get.

People are taking their time to offer assistance to you and you reply with that attitude.