Budget 2013: Rules on Loans to Participators in Close Companies, effective from TODAY

[matzie]

I think we all need to have a good look at http://www.hm-treasury.gov.uk/d/Loan...ticipators.pdf urgently. I'll add a better summary when I've got my head around it, but I think the main thing is a crackdown on bed-and-breakfasting of overdrawn DLA's (already implicitly forbidden) with a specific 30-day rule for £5,000+ and at any time for £15,000+

Alerted to the risk via Budget 2013: Read the small print - FreeAgent.

[northernladuk]

Appears not to change anything regarding directors loans of less than 5K if not overdrawn or over 9 months anyway according to item 33 which I didn't think was a problem anyway.

So there is a 30 day cooling down period between paying back and taking a new loan out... unless it is over £15k in which case there is no relief by paying it back and taking it back out.

That sound about right?

Reading the rest it seems they have just closed some loopholes that looked decidedly dodgy anyway, lending money from your LTD to your LLP and claiming it isn't a personal loan to avoid s455 etc. I think if people were doing this they should have known they are on dodgy ground.

Just looks like a bit of common sense applied to me. If any of these actually applies to you you were on decidedly thin ice anyway. Wording what you should already know if you thought about the spirit of the law?

[matzie]

Yes that's how I see it. Overdrawn Directors' Loans are and always have been playing with fire IMHO anyway.

[Wanderer]

Appears not to change anything regarding directors loans of less than 5K if not overdrawn or over 9 months anyway according to item 33 which I didn't think was a problem anyway.

So there is a 30 day cooling down period between paying back and taking a new loan out... unless it is over £15k in which case there is no relief by paying it back and taking it back out.

That sound about right?

Sounds like a fair summary to me. So people pretty much need to keep the director's loans under £15k to avoid a S455 charge sometime in the near future.

It sounds a bit odd how they say that bed and breakfasting loans is not allowed but then they go on to say that you need to leave at least 30 days between repaying the sub £15k loan and taking it out again. So does that mean we are allowed to B&B a loan so long as it's sub £15k and it's paid back for at least 30 days?

It still doesn't prevent someone with huge reserves taking a loan, take the hit on the 25% S455 charge, pay interest (net cost of 1% per annum), then do a MVL a few years later. Still a more tax efficient option compared to taking the higher rate tax hit by paying out the reserves as dividends while the company is still trading....

[northernladuk]

Sounds like a fair summary to me. So people pretty much need to keep the director's loans under £15k to avoid a S455 charge sometime in the near future.

I don't think that is it. It is saying the cooling down 30 days isn't enough to allow the relief if it is over 15k. You still cannot loan between 5k and 15k for 30 days. If it is more than 15k then even the 30 days won't get you the relief no?

It sounds a bit odd how they say that bed and breakfasting loans is not allowed but then they go on to say that you need to leave at least 30 days between repaying the sub £15k loan and taking it out again. So does that mean we are allowed to B&B a loan so long as it's sub £15k and it's paid back for at least 30 days?

But it isn't bed and breadfast loan if you wait 30 days. It has 1/3 of a quarter or a 1/12 of a year gap. They are defining the time difference between what they would call an acceptable load and a B&B one. There has to be a limit somewhere.

It still doesn't prevent someone with huge reserves taking a loan, take the hit on the 25% S455 charge, pay interest (net cost of 1% per annum), then do a MVL a few years later. Still a more tax efficient option compared to taking the higher rate tax hit by paying out the reserves as dividends while the company is still trading....

Yep I think so. It does say the 25% is a deterrent rather than a stopper. I hope I ain't saying something stupid here but can you liquidate a company with a large outstanding loan?

[Waldorf]

So will this measure damage all these Isle of Man and other offshore tax schemes? Can't keep up to date with how they work but from what I read some of this clamp down will apply from today, and other legislation to apply from the 2014 budget.