Loans and Write-off

[dandaman]

Hi

Apologies if this seems like a daft question, but I'm a bit of newbie.

My question relates to loans and what the tax implications are of my limited company offering me a Director's Loan before subsequently writing it off (if needs be).

Also, is it possible for me to loan to another company and then write it off?

If anyone could shed light on this it would be great.

Thanks

Dan

[malvolio]

Hi

Apologies if this seems like a daft question, but I'm a bit of newbie.

My question relates to loans and what the tax implications are of my limited company offering me a Director's Loan before subsequently writing it off (if needs be).

Also, is it possible for me to loan to another company and then write it off?

If anyone could shed light on this it would be great.

Thanks

Dan

You can, you control the company and what it does with its money. You'll be prosecuted for tax evasion of course, but I assume you've covered that already.

[kal]

You can, you control the company and what it does with its money. You'll be prosecuted for tax evasion of course, but I assume you've covered that already.

Well put!

[Craig at Nixon Williams]

Hi

Apologies if this seems like a daft question, but I'm a bit of newbie.

My question relates to loans and what the tax implications are of my limited company offering me a Director's Loan before subsequently writing it off (if needs be).

Also, is it possible for me to loan to another company and then write it off?

If anyone could shed light on this it would be great.

Thanks

Dan

You can make a loan to a director legally, however this has several tax implications, listed below:
1. If the loan exceeds £5,000 then it will be classed as a benefit in kind and you will need to pay tax (and the company pay class 1a NIC) on the interest deemed to be payable if you had taken a loan in a commercial transaction.
2. If the loan is outstanding at the end of the accounting period and is not repaid to the company within 9 months of this date, the company will become liable to S455 tax which is charged at 25% of the outstanding balance.
3. If you repay or write off the loan then you will be able to recover the S455 tax, a written off loan will be assessed as dividend income so if you are a higher rate tax payer you will pay 25% personal tax.

Hope this helps!
Craig

[Wanderer]

If you repay or write off the loan then you will be able to recover the S455 tax, a written off loan will be assessed as dividend income so if you are a higher rate tax payer you will pay 25% personal tax.

Nice to see someone give a proper answer to the question.

I think that having the income assessed as dividend income presumes there are company profits and proper dividend paperwork to clear the loan. If the loan is just written off then it would have to be declared on the self assessment and that means the director is liable to pay tax and NI which would result in more tax being paid than if they had just declared a dividend properly which would have avoided NI.

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

So, to answer the OP's question which was basically "Can I start a company, do some business, take all the company's money, not pay it back and not pay any tax?", the answer is NO!.

Run your company properly or you will end up in a lot of trouble in a few years time when HMRC catch up with you (if malvolio doesn't get you first).