Director's Loan - how much can you borrow?

[Gittins Gal]

Ok, it's £9k, I know. My question is this, though. If I borrow £8k then pay it back within the same tax year (had to do some juggling a few weeks back) does that mean I can now only borrow £1k this years or has the balance been reset now I've paid it back?

[ctdctd]

Thought it was £5K

Above that and it's a benefit in kind.

And yes, if you pay it back, you can borrow it again in the same company tax year - subject to limit above.

[northernladuk]

Why are you messing about with directors loans? It's over 5k so you should be paying yourself interest and constantly paying it back and taking it out is going to look very much like bead and breakfasting.

Bearing in mind the new 30 day rule and S455 I would sit down with your accountant and get some proper advice. Messing about with directors loans and getting it wrong is going to cost you alot.

Clear it all off and leave it alone for a good time IMO.

[northernladuk]

Thought it was £5K

Above that and it's a benefit in kind.

And yes, if you pay it back, you can borrow it again in the same company tax year - subject to limit above.

Not quite hence the need so speak to your accountant.

[TheCyclingProgrammer]

Currently, up to £5k without there being any BIK issues. From April, this limit goes up to £10k. Additionally I believe you need a shareholders meeting for any loans in excess of £10k.

For loans above the BIK threshold, you need to pay interest at the standard rate as outlined by HMRC (I believe it's 4% or so) OR pay NIC on the benefit (calculated on the difference between the interest rate you pay, if any, and the HMRC rate).

Finally, any outstanding loan at the end of your company's financial year needs to be paid back within 9 months of the end of the accounting period or you will be subject to a (temporary) corporation tax charge of 25% and you don't get this back until 9 months after the end of the accounting period in which it's paid back.

You can't avoid this by simply repaying the loan and then taking it out again as this is caught by "bed and breakfasting" rules which were tightened last year I think. If the loan is below £15k there needs to be at least 30 days between the repayment of the loan and taking a new one. If it's above £15k then HMRC can challenge the new loan no matter when it's taken out if it's obviously a continuation of the previous loan.

HTH.

[ctdctd]

Not quite hence the need so speak to your accountant.

Indeed - over £5K, speak to your accountant.

Under £5K, zero balance at end of company tax year, and properly recorded, you can do what you like with no need to consult accountant.

[TheCyclingProgrammer]

To answer your question, it's based on your company's financial year not the tax year. It doesn't matter how much you borrow or pay back during the course of this period (subject to what I outlined above), what matters is what's left outstanding at the end accounting period, as it relates to the CT charge.

As I mentioned before, the current limit is £5k not £9k so you should be paying either interest or NIC as the loan is above his amount. I'm not sure if this applies to the whole loan or just the amount over £5k, I suspect it's this former.

I'm going to go all NLUK and say you should speak to your accountant ASAP to make sure you sort out the BIK issue (easily rectified but make sure you do). If you intend to pay it all back before the company year ends (or within 9 months after) you need not worry about he CT charge.

[TheCyclingProgrammer]

Not quite hence the need so speak to your accountant.

I don't disagree with your advice but taking out and repaying multiple loans within a single accounting period isn't going to cause a problem. Bed and breakfasting doesn't come into the equation unless it's being used to avoid a CT charge.

I do agree that people shouldn't be messing around with directors loans unless they are fully aware of the rules and consequences if they mess it up, and OP clearly isn't.

[northernladuk]

I don't disagree with your advice but taking out and repaying multiple loans within a single accounting period isn't going to cause a problem. Bed and breakfasting doesn't come into the equation unless it's being used to avoid a CT charge.

I do agree that people shouldn't be messing around with directors loans unless they are fully aware of the rules and consequences if they mess it up, and OP clearly isn't.

But if the OP isn't aware of all the rules, which is clearly the case, they need to be very clean. Again what you say is correct to people that can manage it properly. The OP needs to understand that there can be problems. They could easily fall foul of the 30 day rule within a company year and again, the end of an investigation may say bed and breakfasting doesn't apply but the aim is to avoid and investigation, not push the rules so hard HMRC come looking and you end up having to defend yourself.

The OP makes no mention of how long this loan situation has been going on so for all we know she could be in a world of trouble already.

30-day rule

Where a participator makes a repayment of more than £5,000 to the company and within 30 days a new loan is taken out, the reduction that is normally allowed in the 25% tax charge calculation will be restricted by the lower of the amount repaid and the new amount borrowed. For example, if a participator has a loan of £12,000 and a repayment of £10,000 is made shortly after the end of the accounting period then previously a 25% tax charge would be applied to the remaining balance of £2,000.

However, if within 30 days of the repayment, a further loan of £8,000 is taken out then under the new rules, a 25% tax charge will become due on the balance of £10,000.

[TheCyclingProgrammer]

I'm just stating the facts and answering the question the OP has asked. It's not my responsibility to make sure people know what they are doing, it's theirs.

I thought my first post made pretty clear all of the things that need to be considered when taking a directors loan, including the 30 day rule.

Their accountant should have explained all of this to them in the first place.