Directors Loan Account

[Bluebird]

Afternoon Folks - a bit of clarity required.

If at the end of my Accounting Period I have "paid" myself as an individual more money than was available for dividends / wages - this is I think termed the Directors Loan Account, which will become liable for tax.

Am I right in saying that I have [ as an individual ] an amount of time to pay this back so that tax is not incurred?

Here's an example - I paid January & February wages in december - but then didn't pay then in January & February - so the net effect is that the DL is paid back and therefore not taxable?

[Clare@InTouch]

If a loan account is outstanding at year end then it needs to be repaid within 9 months in order to avoid the company having to pay an extra 25% tax on it, under Section 455. You can repay physically, or by not taking wages and expenses owed to you. You could also declare, but not take, a dividend if profits became available. That dividend would form part of your personal income for that tax year, obviously.

[Bluebird]

If a loan account is outstanding at year end then it needs to be repaid within 9 months in order to avoid the company having to pay an extra 25% tax on it, under Section 455. You can repay physically, or by not taking wages and expenses owed to you. You could also declare, but not take, a dividend if profits became available. That dividend would form part of your personal income for that tax year, obviously.

Ok that sounds like that one sorted then.

The other bit was that I took out a business loan to cover the shortfall [ the company I started working for delayed payment of invoices by 2 months ], so what I presumed it was ok to do was to pay myself dividends out of "profit" that had not yet been realised but was there in terms of outstanding creditors.

What I've since done is rather than pay myslef the dividends and then pay back to the company I've just let the loan repayments carry on.

So for example - Loan Account as of 31/12/2010 was £6000 [ £2000 wages and £4000 loan paid as dividend ].

As of 31/08/11 the balance of that is £1000 [ £2k wages not taken and £3k loan paid back ] - therefore the company [ not me? ] pays 25% tax on the £1k ?

Is it that simple??

Thanks

[JamJarST]

Do you mean dividends or wages? You use both words in your questions, but they are two different things and the difference is important.

[Clare@InTouch]

Ok that sounds like that one sorted then.

The other bit was that I took out a business loan to cover the shortfall [ the company I started working for delayed payment of invoices by 2 months ], so what I presumed it was ok to do was to pay myself dividends out of "profit" that had not yet been realised but was there in terms of outstanding creditors.

What I've since done is rather than pay myslef the dividends and then pay back to the company I've just let the loan repayments carry on.

So for example - Loan Account as of 31/12/2010 was £6000 [ £2000 wages and £4000 loan paid as dividend ].

As of 31/08/11 the balance of that is £1000 [ £2k wages not taken and £3k loan paid back ] - therefore the company [ not me? ] pays 25% tax on the £1k ?

Is it that simple??

Thanks

If you're repaying the loan personally, and it's a company liability, then this would reduce the directors' loan. As would wages due to you but not taken. So, yes, it's that simple

[Bluebird]

If you're repaying the loan personally, and it's a company liability, then this would reduce the directors' loan. As would wages due to you but not taken. So, yes, it's that simple

No the company is repaying the loan - my theory was that rather than :

the company pay me £200 a month, then I pay the company £200 a month and they in turn pay the bank £200 a month

I would just let the company pay the £200 a month - the fact that the £200 has not been paid as "dividend" means thats it's implied paid back?

I think where I've gone wrong is that I've just let the company pay it.

[Bluebird]

Do you mean dividends or wages? You use both words in your questions, but they are two different things and the difference is important.

I used both a I paid both...

[Clare@InTouch]

No the company is repaying the loan - my theory was that rather than :

the company pay me £200 a month, then I pay the company £200 a month and they in turn pay the bank £200 a month

I would just let the company pay the £200 a month - the fact that the £200 has not been paid as "dividend" means thats it's implied paid back?

I think where I've gone wrong is that I've just let the company pay it.

You mean you're paying yourself a £200 dividend each month? And you then pay that dividend back into the company? That would count as repayment of the loan, providing the dividends are legal (i.e. the company had sufficient profits available to declare the dividend).

[Bluebird]

You mean you're paying yourself a £200 dividend each month? And you then pay that dividend back into the company? That would count as repayment of the loan, providing the dividends are legal (i.e. the company had sufficient profits available to declare the dividend).

I think thats the issue - I'm not paying anything back to the company.

However, if the loan wasn't in place then my dividends would be higher....so doesn't it could as being paid back?

[Clare@InTouch]

I think thats the issue - I'm not paying anything back to the company.

However, if the loan wasn't in place then my dividends would be higher....so doesn't it could as being paid back?

Afraid not - if profit is available but you don't take it it doesn't count as you giving anything to the company, so it's not a repayment in any way.