Can a Ltd Company take over a loan?

[gipsyair]

Good afternoon all,

I am a commercial pilot operating as a contractor/freelance captain through my Ltd company of which I am the Director.

I know that paying for training in relation to the industry is tax deductible both through the company and through personal tax, only one at a time of course. It is either seen as a company expense relevant to the business or as a personal career development expense.

However when I many years ago decided to become a commercial pilot I had to take out a pretty significant loan and although I have been paying off on that loan for many years there is still quite a significant amount left to pay. I am currently taking out a PAYE salary and dividends to keep below the 40p tax rate, which means there is a good amount of money being put into the Ltd company and it sits there doing nothing.

The million pound question now is: Can the Ltd company pay off my "student/training" loan established before establishing the company with the money sitting in the company in a lump sum or annual/monthly payments as an employee benefit to me. Would such an arrangement mean that the company wouldn't have to pay corporate tax on the money spent paying off the loan for me as an employee? Would I have to pay some sort of tax on this as a employee benefit?

I don't know if this sounds dodgy or I'm moving into a grey area which is why I am asking for some input from this forum. I have a very good accountant, but before putting him on the case I'd just like to hear what people might have to say and if anyone have had similar experience in or outside aviation.

I should probably say the loan is in a bank in Denmark.

Best regards

Mike

[JamJarST]

Pretty sure the answer to this is going to be no, what does your accountant say? Basically what I think the advise is that you can claim training that is done to be able to perform your current role but you cannot claim to learn a new skill the may lead to new work. The initial training you had was speculative and in the hopes that you would be able to be come a pilot and so falls into the second category. I'm pretty sure the more knowledgable forum memebrs will be along shortly.

[northernladuk]

I don't believe you can claim this training as the rules around training seem to be only costs that are directly related to your business. That does not include start up training. MBA's for example are not allowed as it isn't related to your current revenue stream.

Here are some links from the many training questions we get...

http://forums.contractoruk.com/accou...-training.html

http://forums.contractoruk.com/accou...s-via-ltd.html

A full list of all threads related to training can be found here

training site:forums.contractoruk.com/accounting-legal - Google Search


You could take a loan out of the company but there are rules and you have to charge yourself 4% interest plus other stuff I can't remember but it has been asked so here is a link that might help explain...

http://forums.contractoruk.com/accou...ors-loans.html

There are other posts with this mentioned but I can't find them at the moment.

[ASB]

If you are not UK resident or you are not UK domiciled then there may be some tax efficient things you can do.

Since you say the loan is with a bank in Denmark would that be related to the slightly strange TVA position had with aircraft, boats and related services?

Anyway, yes the company can make the loan repayments, broadly it can do whatever it wants with it's money. However the tax treatment to you is what matters.

You may also want to bring this to your accountants attention. It may fit with your case, or it may not.

Tax relief for pilot training costs | AccountingWEB



You would probably be better taking the money as dividends, though you will have to hand over 25% of the net dividend in the portion that is not in the lower rate band.

You mention a PAYE salary. I hope this is simply broadly equivalent to your personal allowances, this would likely be what was most tax efficient to you, provided you are confident of your IR35 status.

If the co were to make loan repayments it would not be able to charge those against it's tax. Also they would be a benefit in kind to you.

Since this is a cash like benefit it would normally simply be treated as extra salary, also the employer would be paying class 1A NI on it.

[gertysingh]

I enquired about company loans from HMRC once before. Here's what they said to me:

HM Revenue & Customs: Directors' loan accounts and Corporation Tax explained

[gipsyair]

A big thank you to all of you who spent time looking into this issue and giving some good feedback. I will have a good look at the links and search the forum for more insight.

Best regards

Mike