HMRC interest on loan

[css_jay99]

ok calculations as i see it, i'm probably wrong.

Intended loan amount is £10,000
Assuming that directors loan of £5000 has been used up and that the £10k loan will be fully paid in 1yr.

options
1 Balance transfer option where i am under HighRate tax band
3% balance transfer fees will mean cost of loan = £300
Add on 10% tax on dividend of £10,300 to pay loan off = £1030
hence Cost of loan = £1330

2 Balance transfer option where i am over HighRate tax band
3% balance transfer fees will mean cost of loan = £300
Add on 32.5% tax on dividend of £10,300 to pay loan off = £3347 ( £1144 tax credit)
hence Cost of loan = 300+3347-1144 = £2503

3 Company loan Attracting Benefit in Kind at highRate Tax band?


can anyone provide rough estimates for option 3.

cheers


css_jay99

[Olly]

Still don't understand what's wrong with a BIK? It doesn't result in castration - just declare the BIK and pay the tax on the BIK. Don't pay the interest that's more expensive that the tax, and you will pay tax again if you ever withdraw the money.

Edit: And your company will pay corp tax on the interest coming from you.

so what % is the tax if you go the BIK route?

[Grinder]

Hi css_jay

Taking a directors loan has 2 consequences
1) BIK on interest free loan - any amount more than £5k is deemed a BIK if no interest is paid, my advice is to pay interest of 4.75% ( new reduced IR approved rate), no benefit will then arise

2) if the loan is still o/s by 9m 1 day after your year end then you will need to pay 25% of the balance over the HMRC, this would be repaid once the loan is repaid

Hope I have answered your question

Thanks
Neil
Danbro

Still don't understand what's wrong with a BIK? It doesn't result in castration - just declare the BIK and pay the tax on the BIK. Don't pay the interest that's more expensive that the tax, and you will pay tax again if you ever withdraw the money.

Edit: And your company will pay corp tax on the interest coming from you.

[Danbro]

Directors Loan

Hi people, i need some advice. I av just got new card and want to do a balance transfar for about £10,000. That will incure fees of 3% (£300). I will then pay off the card over the 12months period to clear the balance. So I guess the net cost of this approach is £300


I think i have already taken the £5000 directors loan so that gets repaid from div in comming tax year.

I have money sitting in company reserve account earning pitifull interest.

Will taking a (non-interest free) loan from my ltd company be my best option?
can anyone shed light on this?. I wont want a cheap loan which generates a BIK or NIC


cheers

css_jay99

Hi css_jay

Taking a directors loan has 2 consequences
1) BIK on interest free loan - any amount more than £5k is deemed a BIK if no interest is paid, my advice is to pay interest of 4.75% ( new reduced IR approved rate), no benefit will then arise

2) if the loan is still o/s by 9m 1 day after your year end then you will need to pay 25% of the balance over the HMRC, this would be repaid once the loan is repaid

Hope I have answered your question

Thanks
Neil
Danbro

[css_jay99]

Hi people, i need some advice. I av just got new card and want to do a balance transfar for about £10,000. That will incure fees of 3% (£300). I will then pay off the card over the 12months period to clear the balance. So I guess the net cost of this approach is £300


I think i have already taken the £5000 directors loan so that gets repaid from div in comming tax year.

I have money sitting in company reserve account earning pitifull interest.

Will taking a (non-interest free) loan from my ltd company be my best option?
can anyone shed light on this?. I wont want a cheap loan which generates a BIK or NIC


cheers

css_jay99

[Olly]

my accountants often only answer direct questions rather then proffer advice...it's usually left to me (and my chums here) to dig a little deeper and point them in the right direction sometimes.

anyway - I'm paying back the loan now in full plus the interest - so will have held it for about 60 days.
To me there was no benefit in kind - as I paid commercial interest rates.
My ltd has made a quick 500 quid turnover.
So the whole little balls up only really cost me 100 quidish. Far better that than the consequences (although I'm not even sure exactly what they are and would prefer to leave that tin of worms closed)

[Little'Old Me]

For the director:

I use software program to do my clients payroll and P11d's so I can easily work out what the liability will/could be any time I want.

You can pay notional tax on the interest - On a P11d the details of the loan are entered. The amount of interest due is then entered. If you pay any of the interest (or it is added to your directors account) then this amount is entered in the "made good" column. The difference between the interest due and the amount of interest made good is then taxable. But then your accountant should explain all this..............

if you go to this link: http://www.hmrc.gov.uk/paye/stepbystep-loans.htm you can get all the info you want to work it out...... (Have fun!) The rates are there - including the march rate.

For the company

There is a separate tax on amount outstanding at year end on a directors loan. Different rules to do with repayment etc.........

[Olly]

erm......so my ltd pays 21% corporation tax on the interest then the remainder is retained profit.
ah that's not so bad - £200 in C.T. or something - maybe less.

[DaveB]

IANAA

As I understand it loans under £5000 can be made at any time and at any interest rate and without penalty provided they are paid back within 9 months of co. year. If they are not paid back they are then classed as income and taxed as such.

If the loan is interest free then the recipient should pay income tax on interest received on the amount of the loan.

Technically loans of over £5000 are not permitted, however in order for anything to be done about it there has to be a complaint made by a shareholder. Since in the case of most contractor ltds the director is the sole shareholder anyway in practice it wont happen and provided the loan is paid back within the 9 month deadline all will be well.

[Grinder]

Can't you just pay the tax on the notional interest?

ie you don't actually have to pay the interest, instead its deemed a benefit in kind that you had an interest free loan, the amount of the benefit being the interest waived and the tax calculated at higher rate from that.

Hand over to the experts.

[centurian]

I messed up and paid myself a dividend at the end of December.
I now want to pay it back and re-take it in April.
My accountant is saying I should pay 6.5% a.p.r. interest on it until end of Feb, he didn't know the rate for March yet.

So I can still take 5K of loan without interest. The rest, I'll pay interest on.

Buuuut... 6.5%...that's a bit steep isn't it?

Any thoughts?

Seems about right. Long term loans (i.e. mortgages) might be lower at the moment, but the best rate you'll get on a medium term loan is around the 7-8% mark.

Short term loans, like credit cards are still way over 10%.

At least you get back some of the interest you pay as it goes back into your company. I guess you'll end up paying corporation tax on the interest as that is "profit".

[Olly]

I messed up and paid myself a dividend at the end of December.
I now want to pay it back and re-take it in April.
My accountant is saying I should pay 6.5% a.p.r. interest on it until end of Feb, he didn't know the rate for March yet.

So I can still take 5K of loan without interest. The rest, I'll pay interest on.

Buuuut... 6.5%...that's a bit steep isn't it?

Any thoughts?