Directors Loan Account - Overdrawn

[TheFaQQer]

Yeah, sorry Olly I wasn't trying to disagree with you.

You do get S.419 back, but typically a lot later than people think. If the OP can juggle funds, he can still potentially avoid this altogether, otherwise HMRC may end up holding £3k of the company's funds for several years.

Given the topic, I'd suggest that that's a BIG "If".

[Maslins]

Yeah, sorry Olly I wasn't trying to disagree with you.

You do get S.419 back, but typically a lot later than people think. If the OP can juggle funds, he can still potentially avoid this altogether, otherwise HMRC may end up holding £3k of the company's funds for several years.

[Olly]

As Olly suggests you should be paying a market interest rate on the loan. If you don't there may be benefit in kind issues, but I would suggest this is relatively minor compared to the S.419.

It's 4.75% as set by HMRC, to avoid possible issues this is the rate to be paid, not a different 'market' rate. There ARE benefit in kind implications (over 5K)

Why is it minor? S.419 you get the money back....the interest you don't

P.S. Well actually you do get some of it back, but you pay 21% corp tax on it + whatever other tax you pay depending on how you snaffle your Ltd's turnover

[Maslins]

I'll pay the 25% S419 Tax. if I do this, will this basically clear the loan account as it would then be treated as earnings? Or do i simply pay the tax, pay it back as best I can and reclaim the tax once paid off?

Paying the S.419 won't clear the loan account. You pay the S.419 tax along with your corporation tax. If you manage to clear the loan before your next year end (April '10) you'll then effectively be able to reclaim the S.419 (either in full, or the part relating to the proportion of the loan you've repaid) at the same time you pay your next corporation tax bill...so a long time away.

If you don't clear the loan until after April '10, then you're basically waiting until January '12 before you can get the S.419 tax back.

As Olly suggests you should be paying a market interest rate on the loan. If you don't there may be benefit in kind issues, but I would suggest this is relatively minor compared to the S.419.

Have a word with your accountant, they'll know your personal situation far better than we on a forum can and can recommend the best course of action for you.

[Olly]

I think so, but the HMRC site is actually pretty useful most of the time when you know what to search for:

http://search.hmrc.gov.uk/kbroker/in...7&mt=0&qt=s419

No!
Otherwise you'd have received a benefit from you Ltd. According to my accountant and my own digging you MUST pay interest on the loan from your Ltd at 4.75% (in addition to the 25% which you can claim back)
Simples!

[TheFaQQer]

I have an overdrawn Directors loan account of £12000 and obv cannot afford to pay this back before the End of December.

Why is it obvious that you cannot afford to pay this back before the End [sic] of December?

[Moscow Mule]

Or do i simply pay the tax, pay it back as best I can and reclaim the tax once paid off?

I think so, but the HMRC site is actually pretty useful most of the time when you know what to search for:

http://search.hmrc.gov.uk/kbroker/in...7&mt=0&qt=s419

[Olly]

then provided you clear it within 9 months of the y/e the company will have no extra tax to pay.

.....no extra tax to pay providing you clear the debt and pay your Ltd interest at HMRC rate (4.75% I believe)

[St1973]

Thanks Guys,

My year end was April 09 so its due in December.

I'll pay the 25% S419 Tax. if I do this, will this basically clear the loan account as it would then be treated as earnings? Or do i simply pay the tax, pay it back as best I can and reclaim the tax once paid off?

Apologies, complete Contractor newbie here :-)

[Maslins]

Is your year end December? If so, and it wasn't overdrawn last December, then provided you clear it within 9 months of the y/e the company will have no extra tax to pay.

If you don't manage to do that, the company will have to pay a temporary tax of 25% of the amount outstanding. Google "S.419 tax" if you want to find out more on this.

You can't legally declare a dividend without retained earnings. You could potentially pay yourself a bonus to clear it, but this would lead to personal tax charges on yourself (bonus is no different to salary).

I wouldn't recommended writing it off. There are disputes as to the correct treatment of this, but I think you should avoid it if at all possible.

Your best bet (assuming the company is trading profitably) is simply to carry on plugging away, and make sure you personally draw out less than the company makes. Then you can declare a dividend to clear/reduce it.

[moorfield]

Buy a mac, some sunglasses, and a one way ferry ticket to Calais.

But seriously, it's not too much of a problem as long as you declare it, you'll need to pay a little extra tax I think.

Do talk to your number bods about this though asap.

[St1973]

Hi,

I have an overdrawn Directors loan account of £12000 and obv cannot afford to pay this back before the End of December.

What options do I have?

Can I declare a Dividend with no retained profit?

What would it cost to write it off?

Any advice would be appreciated

Cheers
S