Interest on Directors Loan

[Scrag Meister]

Back at the end of August I took a Directors Loan of £5200, which I then lent to my son to buy a car after an accident.

He has so far paid off £200 and £2500 in Sept, £162.50 and today a further £1537.50 in October leaving a balance of £1000 which will be gone well before year end in May.

How much interest should be paid to MyCo to avoid all the BIK nonsense?
None at all if repaid before year end?
4% as per HMRC rates?

Thanks

[Craig@Clarity]

Interest should be paid at HMRC rates to avoid any BIK issues (personal tax and company Class 1A NIC).

Paying nothing at all will not stop any BIK issues since the balance of the DLA is over £5k. Repaying the loan back before 9 months after the year end stops the company from paying s455 tax (25% of the DLA balance) over to HMRC.

[northernladuk]

Isn't a directors loan (5K max, no interest to be paid, pay back with in 9 months for not BIK but do not bed and breakfast it) completely different to a business loan from the company (No limit, interest paid at HMRC minimum, end year lump sum paid but get it back at end of loan yadda yadda)

Are you mixing the two up? If you insitially gave one and it is going to cost you can you not swap it to the latter?

[Craig@Clarity]

Isn't a directors loan (5K max, no interest to be paid, pay back with in 9 months for not BIK but do not bed and breakfast it) completely different to a business loan from the company (No limit, interest paid at HMRC minimum, end year lump sum paid but get it back at end of loan yadda yadda)

Are you mixing the two up? If you insitially gave one and it is going to cost you can you not swap it to the latter?

A loan to his son should be treated as a DLA as it is a loan to an associate of a participator. The definition of an associate of a participator can be found here: Close companies: tests: associates As such, the loan is treated as the directors/participators CTM61505 - Close companies: loans to participators: general The last link refers to s419 which has been superceded by s455 but the underlying principle still remains.

[northernladuk]

A loan to his son should be treated as a DLA as it is a loan to an associate of a participator. The definition of an associate of a participator can be found here: Close companies: tests: associates As such, the loan is treated as the directors/participators CTM61505 - Close companies: loans to participators: general The last link refers to s419 which has been superceded by s455 but the underlying principle still remains.

Interesting. Thanks.