Reply to: Directors Loan (warning - potential newbie question!)

[hugebrain]

I use Alliance and Leicester for my business savings.

You are the bravest of the brave!

[NotAllThere]

Look. I've an excuse. I'm in pain, working my way through a bad bottle of whisky, and not at work.

Let's keep the group hugs till at least after the pubs have closed.

[chris79]

Dude69, thanks for this comprehensive reply. I'm currently packing up to go home now but will read it in depth when I get in later tonight. Much appreciated, and no attitude??

How about we all just have a Friday group hug and put the past in the past?

[dude69]

So to get round this can you just borrow it, pay it back a week before year end, then after year end, borrow another £5k?

Two provisions:
1. As an employee, a loan for any purpose that does not exeed £5k at any point throughout the year is not taxable. If it ever exceeds £5k, the entire loan becomes a BIK (which is not so expensive, but is just hassle).
2. As a close company (owned by a small number of people_, any loan to a participant (you, as the director) that is outstanding when the CT return is completed attracts a 25% Corporation Tax charge.

I.e.

My company's year end was December 31st 2007. Accounts will be drawn up to that date (although probably several months later), showing a loan to me of £3,000. The Corporation Tax return is due within 9 months of year end. That is September 30th 2008.

On the CT600, there will be two questions:

1. What loans were outstanding to directors as of y/e (December 31 2007 for me)
2. When were the loans repaid, and how much was repaid.

In my case, the answer to 1. is £3,000, and the answer to 2 will be April 30th 2008. So I cannot submit my CT600 yet, because the loan has not been repaid yet.

That is the reason for the 9 months rule - as long as the loan is repaid by the time you submit the CT return, no tax is payable - because it is at the point of CT600 submission that your tax is repaid.

In my case it will say:

Q12 (or whatever)
Loan A Director £3000

Q13:
Repayment
A Director -£3000 30/04/2008

The reason that the accountants don't like it is that instead of a CT600 that says:

Revenue £100,000
Expenses £20,000
Tax £16,000

you have to declare the loan, and then declare its repayment. They might find this is a bother, although it takes no effort at all online, and secondly it might be a red flag to HMRC.

In terms of maintaining a £5k loan on an ongoing basis then, assuming January 1 - December 31 financial year, there are a few ways of handling things

January 1 2008, borrow £5k
December 31 2008, year end, accounts show £5k asset of director's loan
April 6 2009, repay £5k using a dividend payment out of new year's tax allowance

Between April 6 2009 - September 30 2009, submit Corporation Tax return, declare £5k loan and £5k repayment on the return, so no special CT charge for loan to close company.

To avoid having to declare it on the CT600, repay the loan about a week before year end, and then on the first day of the new financial year, borrow the money again. THis will involve money moving back and forwards though, which will cost you a few days interest. Deferring dividends until end of financial year end is rarely going to be advisable though, you should declare max tax-free dividends early in the tax year, so the money is working for you rather than languishing in company account. The only financial year that it works well for is something like May 1-April 30, where you can borrow money on May 1, and repay it on April 6 the following tax year but same financial year by means of a dividend payment.

In terms of money management and in and outflows of cash, declaring it on CT600 and in accounts at year end is going to be easiest.

There's little problem with having an exactly £5k loan - it's pretty hard to go over £5k balance because you can't accidentally take money out of your company, whereas it's easy for the company to run up debts to you (expense claims, items purchased by you for the company,e tc.).

PS. Drop your attitude.

[chris79]

LOL, I'll greet the toast likewise then to our new found friendship and mutual understanding.

[NotAllThere]

The disclaimer was intended as a light hearted joke given recent events on this forum which included myself.

Friday. Chill.

I was skiing this morning, and it's kicked of a bout of sciatica.

Given your new-found respect, I'll raise a glass of the piss-poor Jameson Irish I'm being forced to drink this evening.

Cheers

[chris79]

Yeah, that's the one I'm going for cheers! The withdrawl by post isn't really a problem and has a CHAPS facility if required.

[Hex]

Just checked out Northern Rock and rates are excellent, can be done electronically too so looks like I'll stick my money in there then! Cheers.

Are you sure you're looking at the right account? The account I was referring to was the Business Reserve account which pays 5.6% but can only be operated by post (for withdrawals). You can pay into it electronically.

[crack_ho]

I've also used a Northern Rock Business account which was a postal account and paid good rates. I'm sure you'll have your own opinion on them.

I like this. Getting the government to pay a good interest rate on your corporation tax due.

[chris79]

The disclaimer was intended as a light hearted joke given recent events on this forum which included myself.

Friday. Chill.

[NotAllThere]

Disclaimer: This following question could be deemed 'newbie', please do not read any futher if you are offended by such questions.

I find the disclaimer highly patronising, totally uncalled for, and therefore offensive. Really.

1. I've read the term 'Directors loan account'. Is this referring to a ledger within my books? Or is it an actual bank account.

The former.

. Is it as easy as just transferring up to £5k from my business account to my personal current account using online banking and recording this within my accounts software?

Yes. But the strictly, the loan account is for you to loan money to your company, not vice versa.

[chris79]

Just checked out Northern Rock and rates are excellent, can be done electronically too so looks like I'll stick my money in there then! Cheers.

[Hex]

I use Alliance and Leicester for my business savings. Rate is currently 4.43% AER up to £50K and 5.16 AER up if you have more than 50K in it. You can use internet banking and it comes with a sort code and account number. I get the agents to credit it directly rather than credit my current account and I use it for all electronic transfers.

One sneaky thing they do though is to create a new "issue" number of this account from time to time. The old issue numbers then tend to get lower rates than the newer ones.

The account is their Business Instant Reserve Account.

I've also used a Northern Rock Business account which was a postal account and paid good rates. I'm sure you'll have your own opinion on them.

[chris79]

Cool cheers, that's all my questions answered! Thanks for all your help.

[malvolio]

Cool, I see they pay 5% on £500k+, I think this meets my needs!

http://www.caterallen.co.uk/Interest...lt.aspx?pid=10


No seriously, thanks I'll look into this, looks good. Another newbie question, I *CAN* move funds from my Business current account to another location for the purpose of getting a better rate yes?

Provided you remember whose money it is, and that all such transactions are fully auditable. Forget that detail and the average term is 4 years for fraud or 8 years for evasion, depending on what you do....