Reply to: Directors loan - how to?

[BolshieBastard]

I only ever used mine cos I was advised, in 1995, by IAS (now Giant) that monthly dividends had some kind of risk over quarterly ones. Now I'd only use it if I needed some cash for a very short term.

This is utter bollocks (the advice you got, not your post and is another example why not to use umbrellas).

There is nothing written in statute, IR or HMRC legislation that says dividends can only be taken 3 or 4 times a year and that dividends taken monthly or every 2 months indicates a different tax liability and therefore risk.

[DonaldG]

I take cash advances from business account for cash expenses such as taxi fare payments. Are these cash advances considered Director's loan, if not how are these cash advances to be entered in the books?

Only if your advances exceed your expenses - ie if you take a cash advance of £100 and your expenses are only £90 then you need to pay back the £10 - otherwise it goes into your director's loan.

[max]

I want to borrow £5k from my company business account, I also run my own books (Sage instant accounts). Whats the process here, do I just transfer 5k to my own personal account and mark it as a 'payment' in sage? What do I do when paying it back - anyone done this before?

Cheers.

Can you take the loan and pay interest at say, current BOE base rate of 2%?

Wouldn't be a directors loan, but cheap and no mucking about with dates and BIK etc.

[Ashwin2007]

Cash advance or Director's Loan?

I take cash advances from business account for cash expenses such as taxi fare payments. Are these cash advances considered Director's loan, if not how are these cash advances to be entered in the books?

[DonaldG]

My company year end is 31-dec-08

I took £3000 out in 01-Apr-08
I took another £3000 out in 01-oct-08
which means my loan account is now £6000

From what you are saying here, it implies that no BIK tax occurs because the two loans occur in different tax years

right?

css_jay99

There is a BIk because the current balance is over £5K, as NW stated. The taxable benefit is pretty low as it is based on the interest figure of the loan (which i think is currently 5.5% pa). The company pays Class 1A NIC on this at 12.8% and it is included as income on your personal tax return. I would suggest that you declared a dividend on 30 September 2008 and credited it to your loan account.

I agree with Nixon, that overdrawn loan accounts are not really worth it unless in certain circumstances - ie deferring dividends to keep out of higher rate tax.

To add to Nixons point on overdrawn loan accounts, yes it is taxable at 25% if still outstanding 9 months after the accounting year end and it is declared on the company tax return. However if subsequently repaid the taxman will give you the money back (eventually).

[css_jay99]

BIK taxes

Provided the loan never exceeds £5000 there is no tax charge, however if the loan does exceed £5000 at any one time in the tax year, the exemption is lost and tax would be charged on the BIK of an interest free loan, even if it was only above £5000 for one day in the year.

My company year end is 31-dec-08

I took £3000 out in 01-Apr-08
I took another £3000 out in 01-oct-08
which means my loan account is now £6000

From what you are saying here, it implies that no BIK tax occurs because the two loans occur in different tax years

right?

css_jay99

[NotAllThere]

I only ever used mine cos I was advised, in 1995, by IAS (now Giant) that monthly dividends had some kind of risk over quarterly ones. Now I'd only use it if I needed some cash for a very short term.

[Nixon Williams]

We would generally advise against loans to a director as it is very easy to forget and exceed the limits and end up paying extra tax.

BIK taxes

Provided the loan never exceeds £5000 there is no tax charge, however if the loan does exceed £5000 at any one time in the tax year, the exemption is lost and tax would be charged on the BIK of an interest free loan, even if it was only above £5000 for one day in the year.

Corporation Tax

A loan to a director of whatever sum would be chargeable to an extra 25% tax if this sum is not repaid within 9 months of the period end.

So if at the year end there is a loan of £8000 to the director, and it is not repaid by 9months of the year end, a charge of £2000 is made on the company.

Whilst they are available, personally I do not think they are worth the potential hassle of having one, but this is a decision for each person to make.

Alan

[dude69]

The limit is £5K at anyone time. ( Otherwise, you should have a BIC - perhaps the BIC on £10K for a few weeks is so negligible that they didn't bother. Or perhaps they just don't know the law/rules ). The loan must be paid off within 9 months of company year end.

I generally took the loan, then paid it off against a divvy. Just to help my (personal) tax flow.

The nine months thing is for close companies. Which ours are.

But there is still the small loan exemption of £5k.

How do these interact?

[VectraMan]

As I read it, it's a BIK, so a personal tax issue. Somebody looking at your company books wouldn't find a problem with a £10K loan, as it's not a company issue. But they might alert the right department to your personal tax liability.

[NotAllThere]

The limit is £5K at anyone time. ( Otherwise, you should have a BIC - perhaps the BIC on £10K for a few weeks is so negligible that they didn't bother. Or perhaps they just don't know the law/rules ). The loan must be paid off within 9 months of company year end.

I generally took the loan, then paid it off against a divvy. Just to help my (personal) tax flow.

[Archangel]

The key point is that the balance of the loan must NEVER EVER exceed £5k (even for one day), otherwise you have to pay tax on it (there's a fair few documents discussing loans online - you can also have qualifying loans as well, to exceed £5k, but for our purposes it's simplest just to consider that you can have £5k max).

I borrowed 10k from the company for a few weeks, when the IR checked my books they asked about it, I told them it was a directors loan and because it was repaid in the same company year it was no problem. I think the 5k limit is only for going over a company yearend.

[kookachoo]

I was talking to my accountant the other day about doing this. The advised me that they will just move it to the Directors Current Account and then want to see it repayed after a period (I believe they quoted me 9 months - but I might be mistaken, we had a long conversation). But then of course you can repay it and take out another one.

From what I can tell we all agree on the amount and the fact you can do it - perhaps give your accountant a call to see what they will support in the summary of your end of year accounts.

[dude69]

Probably different advice from different accountants. I was advised to show that it was paid back to prove that I am not treating it as an extra £5000 tax free money I can keep hold of for no reason.

Hmm, but I thought that was the point - you CAN have £5k tax-free money to keep hold of for no reason, but no more.

I see that they are hypothesising that HMRC would want to see intent to repay, but I don't see support for that in the HMRC guidance.

Small loans:
http://www.hmrc.gov.uk/employers/ebi...l-loans-08.htm
The benefit of a beneficial loan is not chargeable to tax or liable for Class 1A NICs if the total balance outstanding on all loans does not exceed £5,000 throughout the tax year

But the tax liability arises only if the loan is written off, for which see
http://www.hmrc.gov.uk/manuals/eimanual/EIM01490.htm
http://www.hmrc.gov.uk/manuals/eimanual/EIM21740.htm
etc.

It seems hard to imply a lack of intent to repay, simply because the loan has not been repaid for two years. Generally, HMRC doesn't care what you do with the £5k, and mentions examples such as holiday loans
http://www.hmrc.gov.uk/manuals/eimanual/EIM26314.htm
home improvement loans car loans etc
http://www.hmrc.gov.uk/manuals/eimanual/eim26142.htm

[dude69]

I want to borrow £5k from my company business account, I also run my own books (Sage instant accounts). Whats the process here, do I just transfer 5k to my own personal account and mark it as a 'payment' in sage? What do I do when paying it back - anyone done this before?

Cheers.

Just take the money out, and mark it on your balance sheet at the end of the year as a long-term asset. Balances out nicely.