Did I just diddle myself and my son!! :-)

[Scrag Meister]

My son was hit by another driver recently and asked me to lend him 5k while he sorted out the insurance and comp claim. He understaood there was a tax implication for me to lend it, and we agreed for him to repay half of it.

I took the money 5k+tax from the comany and accrued the personal tax on it (25%!).

Would it have been better to have loaned myself the money and paid the 4% interest.

He's paying back over about 3 years or sooner assuming the insurance payup and some compensation comes his way.

Is there anyway to reverse the current money move to reflect this change.

My dividend declaration hasn't gone through to my accountants in any form yet.

Thanks in advance.

[Clare@InTouch]

You could change the payment to a loan if it's not gone through your accounts or tax return yet, and then charge interest at 4% to avoid any benefit in kind. If it's outstanding 9 months after your company year end then you'll pay an extra 25% CT on it (under section 455) but at least that 25% is reclaimable when you repay the loan to the company.

Make sure you keep records to show the repayments going back to the company, and the original payment of the extra CT to HMRC. HMRC are under no obligation to repay this extra tax if you cannot prove you paid it in the first place (even though their records would show it, they can still refuse if you can't prove it!)

[Scrag Meister]

You could change the payment to a loan if it's not gone through your accounts or tax return yet, and then charge interest at 4% to avoid any benefit in kind. If it's outstanding 9 months after your company year end then you'll pay an extra 25% CT on it (under section 455) but at least that 25% is reclaimable when you repay the loan to the company.

Make sure you keep records to show the repayments going back to the company, and the original payment of the extra CT to HMRC. HMRC are under no obligation to repay this extra tax if you cannot prove you paid it in the first place (even though their records would show it, they can still refuse if you can't prove it!)

The thing is I paid 10k inc tax from my company bank account, so in theory I need to reverse engineer, what I lent myself to lend to my son, and the additioanl bit to process as a dividend.

Total paid from Co £10000
Dir loan -5200 to be repaid @ 4%pa interest
Decl Divnd 4800
Tax to accrue -1200
Net Div 3600

Does this seem right?

Don't mind the CT temporarily, easily covered in company bank account.

[Clare@InTouch]

The tax to accrue is what I assume you're putting aside personally to cover your higher rate tax liability on the £4,800?

What you describe is fine, although it would obviously have been clearer if it had been two separate payments. As long as your records clearly state that part was loan and part was dividend (and you have the voucher to back it up) then it should still be fine as you'll be able to explain the situation to HMRC if they ever asked.

[Scrag Meister]

The tax to accrue is what I assume you're putting aside personally to cover your higher rate tax liability on the £4,800?

What you describe is fine, although it would obviously have been clearer if it had been two separate payments. As long as your records clearly state that part was loan and part was dividend (and you have the voucher to back it up) then it should still be fine as you'll be able to explain the situation to HMRC if they ever asked.

Correct to first statement.

Thanks so much Clare, much appreciated.