Directors loan

[Tramline]

Its not the most tax efficient way of remunerating yourself as not only do you have to repay the money back to the company you also suffer the BIK tax. It would make more sense to pay out an interim dividend

[Bradley]

THe £5k limit applies to the balance on an individual directors loan and benefits in kind, not per shareholder.

It is per shareholder if it's a company with five or fewer shareholders or controlled by the Directors

[lfc69]

Is that £5K per year or the balance should never exceed £5K at any one time before BIK kick-in ?

[Darren@UptonAccountants]

Directors Loan

My accountant (admittedly it was Giant) told me that it was £5000 per shareholder.

THe £5k limit applies to the balance on an individual directors loan and benefits in kind, not per shareholder.

[boredsenseless]

I think you are right with the per shareholder bit... but don't know how this then fits in with S660a.

I'm contemplating just putting the IR bank details on my invoice as it seems easier than collecting it all and then handing it all over

[PerlOfWisdom]

£5000

My accountant (admittedly it was Giant) told me that it was £5000 per shareholder.

[boredsenseless]

There is a distinct difference of opinion on the forum on the best way to take money out of the company.

There are those that work on a minimum salary that takes account of the National Minimum Wage and then take dividends twice a year to fill the coffers.

There are the others that pay themselves a wage equivalent to what they would have earned in the permie world and then declare dividends as and when the company reserves warrant it.

There isn't a right or wrong answer; those who take a 'comensurate salary' are attempting top show that they are paying market rates and therefore not trying to deny the treasury what it sees as its own. The extra on top is pure profit and can be dispersed as such.

If you actually need the dividends to live then you go figure as to whether or not it really is a salary or not!

[Lucifer Box]

Planetit has it correct. Draw enough salary to live off and take the £5k loan. This should see you through until your company is in a position to declare its interim dividend for its first financial year. If that isn't enough, you'll just have to pay yourself more salary and take the hit.

Remember, also, that if you have an employment contract with your company, you must pay yourself the minimum wage (although some say paying yourself the bare minimum is raising a red flag as far as inviting a visit from HMCR is concerned).

[planetit]

Yes, that's what LB meant when he said "non-salary income" - Dividends.

In any case, can't you just live off a reasonable salary and the 5K loan until you get into the swing of 6 monthly dividends.

[lfc69]

but doesn't that mean....

If that is the case then taking regular dividends (as seems to be the only tax efficient way it seems) is also going to be reclassed as salary ?

[Lucifer Box]

Yes, I think boredsenseless is correct. The £5k limit is before it's treated as a BIK rather than an absolute limit. It is also true that if you draw non-salary income regular as clockwork, if investigated by HMCR there is a likelihood that they would reclassify it as salary and present you with a bill for the unpaid tax.

[boredsenseless]

I'm not sure that there is a limit to the loan - but there is a limit before you have to declare it on the accounts (even if repaid) and treat it as a benefit in kind. I might be wrong...

The more worrying aspect is the way the IR might just treat this since you are in effect drawing a regular "salary" of 4K each month but not paying NI or PAYE. I think they might see it as something other than a dividend. I'd definitely talk to an accountant before proceeding with this sort of arrangement.

Be careful also not to fall foul of the Minimum Wage Legislation.

[Lucifer Box]

No, there is a limit on this sort of thing, which I believe to be £5k pa.

As always, this advice is worth exactly what you paid for it.

[lfc69]

Can I take a directors loan, say 4K a month then pay it off at end of year with dividends ?

Also, is the settlement of the loan by dividend no more than paper shuffling as there will be little money in the bank account as I have withdrawn the money via the loan ? And I take it there is still the same corp tax to pay with regards dividends.