Query re. Director's Loan Account

[NeedHelp]

I lent £20k to my company (am the sole director) in Feb 12 to improve the company's cash position. This £20k was basically money left in the bank after paying all corporation taxes, dividends and salaries. Have paperwork to prove this. So this is money I could have paid myself as dividend (staying below the max limit).

I borrowed about £60k from the company’s account on 1st Nov 2012 for paying deposit towards the house (a room of which is used as my business premises).

This loan was not declared in the corporation tax return submitted in Feb 13 (company’s a/c period is 1st Feb to 31st Jan) as I was expecting to repay the entire loan before 9 months from Feb 13 through income from the business, however the market’s not being kind enough.

In essence I only borrowed £40k, of which £10k has been paid monthly from my income and the 9 months of grace period has passed. Does anyone know what I could possibly do to minimise tax consequences of this irresponsible activity?

Thanks

[Clare@InTouch]

I'm not sure I understand your logic on the original £20,000. Just because you didn't take it, it doesn't mean you've lent it to the company. It belongs to the company in the first place, not you. Unless you declared it as a dividend, included it on your personal tax return, but didn't actually pay it out?

You will need to resubmit your CT return for the 2013 accounts and declare the loan, and pay the additional Section 455 tax that should have been paid - unless some or all of the loan has now been paid back, in which case you can reduce it.

If you can't afford to pay the CT and the Section 455 tax then give HMRC a call and see if you can get a payment plan in place. They are often understanding, unless you've withdrawn too many dividends and that's why the company cannot afford to pay the tax due.

Also check whether you need to amend your P11d to reflect the benefit in kind, along with your tax return.

Or - talk to your accountant.

[DirtyDog]

I lent £20k to my company (am the sole director) in Feb 12 to improve the company's cash position. This £20k was basically money left in the bank after paying all corporation taxes, dividends and salaries. Have paperwork to prove this. So this is money I could have paid myself as dividend (staying below the max limit).

To loan the money to the company, you need to have paid it out to yourself, and then not taken it. So the paperwork is either a dividend voucher showing that the company paid it to you, or a payslip which shows the same; and then something which shows you lending the money back to the company, yes?

With all that in place, you can then show that the loan was only ever £40k since it was £20k of repayment to you plus the new loan of £40k. If you haven't declared it to HMRC then you need to get onto them and correct the situation. IIRC, there is a percentage that you need to pay on account (or similar) as well.

Speak to your accountant.

[Clare@InTouch]

IIRC, there is a percentage that you need to pay on account (or similar) as well.

That's the section 455, which is 25% of the value of the loan payable along with the CT. This extra is however repaid to the company when the director repays the loan, so it's a cashflow issue rather than extra tax as such.

[NeedHelp]

can this be treated as a capital expense, for buying a portion of the business premises?

[DirtyDog]

can this be treated as a capital expense, for buying a portion of the business premises?

Is the house owned by the company? Have you got a mortgage, and if so are the mortgage company aware that the house is part-owned by the company? Have you got any paperwork which indicates that the company owns part of the house?

Assuming that the answer to those is all "yes", then you can class it as an expense. Of course, then you probably need to be paying business rates since it's a business premises, and when you sell the house the company will get their share of the profit and have to pay tax on that income as well.

It's not worth trying to fiddle, IMHO.

[northernladuk]

I lent £20k to my company (am the sole director) in Feb 12 to improve the company's cash position. This £20k was basically money left in the bank after paying all corporation taxes, dividends and salaries. Have paperwork to prove this. So this is money I could have paid myself as dividend (staying below the max limit).

I borrowed about £60k from the company’s account on 1st Nov 2012 for paying deposit towards the house (a room of which is used as my business premises).

Erm. You managed to save 40K in 9 months AFTER all CT and VAT money has been allocated, you have paid yourself and given yourself dividends??

Are you sure you are not loaning yourself money that should be set aside for CT VAT?

I presume you didn't speak to your accountant before proceeding down this rocky road? If not you really need to speak to him now. There are so many factors that could come in to play and leave yourself seriously exposed. You haven't mentioned the 4% interest you should be charging yourself which should kick in somewhere.

Time to get some solid professional help.

[northernladuk]

Oh.. and don't even think about repaying it (if you can) and loaning it to yourself again a few months later. There is new tighter legislation out around 'bed and breakfast' loans. Fall foul of it and HMRC will judge there was never an intention to pay it back and tax it as income.

[MyAccountant]

Speak to your accountant

From the original post it doesn't sound like a loan, it sounds like the money belongs to the company.

I think you should really sit down with your accountant and go through this face to face, so you can get the best advice and get a clear understanding of your position.

[DirtyDog]

Erm. You managed to save 40K in 9 months AFTER all CT and VAT money has been allocated, you have paid yourself and given yourself dividends??

The OP's company doesn't cross the VAT threshold for registration, according to their other thread.

Something doesn't smell right.