Directors loan

[del100]

Hi All,

Sorry if I am asking a question already asked \ answered.

I am running a LTD company which has been quite successfully the last three years. My business account currently has £150K in it. I want to now buy a house to let out, a form of investment with some of the money in my business account. I am looking to take out a directors loan of £100k from my business. What do I need to disclose to HMRC and what are the implications?

From my understanding which I am not sure if it is correct, If I take £100k from my company account I need to:
1. Deposit via my corporation tax £25K (25% of 100k) which is a temporary form of tax. The £25k is refunded back to me when I repay the entire loan back to my company.

2. Pay interest to my business, at a rate of 4% i.e. £4000 every year. On which my company will pay 20% corporation tax (£800).

I did not understand what I need disclose on my P11D. Can some help. Again I could be totally wrong with points 1 and 2 above.

I would appreciate your help\feedback.

Thanks,
Del

[Clare@InTouch]

Hi Del

You're mostly correct. The 25% extra CT is due if the loan isn't repaid within 9 months of your company year end, and it's known as Section 455 tax. The CT return will include details of the loan, and the accounts will disclose the transaction in the Notes. The extra CT is refunded to the company 9 months after the year in which the loan is repaid. Keep proof to show you've paid the s455 tax as it's not an automatic refund, and HMRC can refuse to pay if you can't prove you paid it in the first place (odd but true, and they have no obligation to review their own records!) Each time you repay some of the loan you'll need to write to HMRC to request a refund.

The benefit in kind is 4% of the loan, on which you'll pay income tax and the company will pay employer's NI. Your P11D each year will show details of the loan, and it's at that point the extra NI is paid. HMRC have a worksheet you can use to calculate the value as it's apportioned on a day/value outstanding basis.

The value of the benefit will also form part of your income for tax band purposes, so will slightly reduce the dividends you can before higher rates of tax apply.

If you pay interest to the company at 4% then there's no BIK, and no P11D implications. Your company will pay CT on the interest it receives.

Just a thought, have you considered closing the company & applying for ESC C16. It won't be around in its current form for much longer, so worth thinking about. Obviously you'd have to cease trading, so may not be an option at all, depends on your circumstances.

The other option is to buy the property through the company, but that would mean it's owned by the company & you'd have to buy it back if you ever closed/wanted to own it personally. A useful option if you're thinking of using the property as a buy to let/substitute pension down the road.