Corporations Tax

[newstart2011]

Hi

Hoping to get some advise on the following.

I have just received a letter from HMRC advising my first date for filing the Corp tax will be 31st Aug 2012. and that it needs to be paid by 31st May 2013.

Does that mean I am ok to take the money out of the Business Bank Account until May2013 so long as I am sure I can put it back in time to pay the tax ?

Do I need to draw up any documents (Loan paper ?) for being able to take that out as the sole director ?

Thanks.

[northernladuk]

What did your accountant say?

Loaning yourself the tax mans money is one issue but have you read up on loans and know what BIK is? Links to the right if you don't.

[Clare@InTouch]

A company must always be able to pay it's debts as they fall due, so you should be keeping aside the taxes as you go. If you get to your year end and the company cannot pay it's tax at that date, any dividends you've taken may be deemed illegal, and transferred to a loan account. There are tax implications to a directors' loan as it's a benefit in kind, plus you'll pay extra CT if the loan isn't repaid within 9 months of the year end (known as section 455 tax, and equivalent to 25% of the value of the loan).

You can take a loan, but spending your tax money rather than saving it can lead to problems if the future doesn't pan out as you expect it to.

Talk to your accountant before you go ahead.

[tractor]

...

A company must always be able to pay it's debts as they fall due, so you should be keeping aside the taxes as you go. If you get to your year end and the company cannot pay it's tax at that date, any dividends you've taken may be deemed illegal, and transferred to a loan account. There are tax implications to a directors' loan as it's a benefit in kind, plus you'll pay extra CT if the loan isn't repaid within 9 months of the year end (known as section 455 tax, and equivalent to 25% of the value of the loan).

You can take a loan, but spending your tax money rather than saving it can lead to problems if the future doesn't pan out as you expect it to.

Talk to your accountant before you go ahead.

Clare is absolutely right but I would substitute "WHEN" for "IF" in the middle para.

Did I just use substitution? Am I a real business now?

[Notascooby]

Tommy-top-tip...

If this is your first year then as tempting as £10K+ sitting doing bugger all in a low or no interest account is - leave it the hell alone, I'd even go so far as to pay the bill early when the letter comes through.

If all works out you'll have a bigger warchest to play about with soon enough, leave the taxman's share alone before you end up having to sell your car when it all goes a bit tits up.

[rd409]

Tommy-top-tip...

If this is your first year then as tempting as £10K+ sitting doing bugger all in a low or no interest account is - leave it the hell alone, I'd even go so far as to pay the bill early when the letter comes through.

If all works out you'll have a bigger warchest to play about with soon enough, leave the taxman's share alone before you end up having to sell your car when it all goes a bit tits up.

If you are going to put that money in a savings account; then yes go ahead and do it. Make sure of the notice you need to give the bank before withdrawal if this is not an easy access account. There are CT implications for loans over £5000, but in my opinion it is worth it. But please speak to your accountant first before doing this.

If you are planning to pay off your debt with this money or spend that money, then DO NOT DO IT. You cannot be sure what the future holds for you, and it is not your money. So you should not spend it.

HTH.
Dave.

[newstart2011]

Thanks guys.

I totally understand that in todays environment its almost stupid to think my earnings will at least stay flat and that I will be able to pay back the tax when it becomes due. And I also know that you guys will shake your head even more if I was to tell you I was planning to use the money for a non-liquid asset like a house deposit.
However, in very very simple terms, is it possible to just withdraw the money from the account and pay it back before the tax is due ? Guess what I am asking is if there is any chance of any authority coming to me before the 31st May 2013 and asking for Bank statements of the business to prove that I have always maintained enough bank balance to pay back the tax on any given day ??

Thanks again

[LisaContractorUmbrella]

Thanks guys.

I totally understand that in todays environment its almost stupid to think my earnings will at least stay flat and that I will be able to pay back the tax when it becomes due. And I also know that you guys will shake your head even more if I was to tell you I was planning to use the money for a non-liquid asset like a house deposit.
However, in very very simple terms, is it possible to just withdraw the money from the account and pay it back before the tax is due ? Guess what I am asking is if there is any chance of any authority coming to me before the 31st May 2013 and asking for Bank statements of the business to prove that I have always maintained enough bank balance to pay back the tax on any given day ??

Thanks again

Oh dear Please don't do it. I have seen some really bad ideas in my time but this has to be the worst

[malvolio]

Thanks guys.

I totally understand that in todays environment its almost stupid to think my earnings will at least stay flat and that I will be able to pay back the tax when it becomes due. And I also know that you guys will shake your head even more if I was to tell you I was planning to use the money for a non-liquid asset like a house deposit.
However, in very very simple terms, is it possible to just withdraw the money from the account and pay it back before the tax is due ? Guess what I am asking is if there is any chance of any authority coming to me before the 31st May 2013 and asking for Bank statements of the business to prove that I have always maintained enough bank balance to pay back the tax on any given day ??

Thanks again

Golden rule #1 - You and YouCo are literally and legally two different persons. YourCo's money is not Your money. Don't ever mix them up.

What that means is would you give your money to someone else and expect to get it back on demand, for free? I guess not. So why should YourCo? Hence the use of the Director's loan account (which works both ways, incidentally) and the need for interest chargees at a set rate for over-long loans.

However that's not the issue. As others have said, using committed monies as a house deposit is a bad idea, even if all the necessary requirements have been met, since there is no guarantee it's coming back. The only safe way to do this is to take out the loan and immediately set up a standing order on the company account to park enough money each week before you even think about taking it out for yourself, into a deposit account so that the full CT liability is available by the due date. That way, you won't be tempted to use it for something else.

But you also seem to have missed another detail. You can't pay the director's loan back from YourCo's earnings (see Golden Rule #1 above). At some point, you will have to pay a dividend (whether cashed or not) to get the money into your income.

[Notascooby]

There are lots of threads kicking about which cover investing the company's profits, have a read.

Everyone has thought about "borrowing" this tax money, if even only fleetingly - the safe option as mentioned is a fixed income savings product in the companys name but you may just find for the amount you're looking at that it's not worth it.

I can only recommend that you don't litterly bet your house on this gamble.

In short - you're not supposed to use the company money for personal use so it will be seen as a BIK loan. Although either you or your accountant would have to report this (unlikely) if you got the money back into the business account in time. But for £10K - get an unsecured loan from the bank and take the interest hit rather than spending the next 12 months crapping yourself hoping you'll keep your contract.