Reply to: Outstanding Director's Loan - a no-no at year end?

[Lumiere]

Why aren't you paying yourself your expenses back every month?

Have you asked people you know who are permie and have expenses how long it takes for their employer to pay them back? If not, I suggest you ask a few people and follow one of their time scales.

yes, anything between 1 and 6 months

same in my case, I prefer to group payouts by contract / location, rather than reimbursing monthly as in permanent employment.

[SueEllen]

£5k will only cover expenses for 2-3 months, still better than paying it with your own money.

Why aren't you paying yourself your expenses back every month?

Have you asked people you know who are permie and have expenses how long it takes for their employer to pay them back? If not, I suggest you ask a few people and follow one of their time scales.

[Mustang]

£5k will only cover expenses for 2-3 months, still better than paying it with your own money.

This concerns me for two reasons:

1) Why are your expenses so high?

2) Why does it take so long for you to pay yourself back your expenses....?!

[SackmanandCo]

interesting about bed and breakfasting loan- one should be mindful that the internal manuals are what HMRC tell the inspectors to do. This is not the law! We have dealt with tax inspections before where HMRC refer to their manuals. We thank them for their interpretation of the law and then ask them where it says this in the legislation. Has resulted in some cases closing very quickly. Generally speaking, although there is some good stuff on their website, what appears is not always a matter of fact.

[Clare@InTouch]

£5k will only cover expenses for 2-3 months, still better than paying it with your own money.

Am I correct about timing, that I can have it for 21 month if I wait until after the next year end ?

Yes.

[Lumiere]

Hotels, trains, planes and a lot of other expenses can be paid for directly from the company with company credit/debit card

you can't pay for petrol, only "claim" it back later on via mileage allowance
some b&b take cash only
some airlines penalise you for using credit cards (no company debit card)

[Lumiere]

If you're reclaiming expenses on a monthly basis then surely the amount the company owes you wouldn't get a huge level? You can even repay yourself more often if it makes a difference.

£5k will only cover expenses for 2-3 months, still better than paying it with your own money.

Am I correct about timing, that I can have it for 21 month if I wait until after the next year end ?

[Clare@InTouch]

Thanks, so in theory if I borrow it on the day after the coming company year end date I can have it for 12 + 9 months rather than 11.5 with no consequences ?

How should it be done properly to avoid s419 in this case ? A week/month after, or this is another grey area in the revenue's guidelines ?

I found that I am spending a lot of personal money on business related expenses (fuel, hotels etc.) which I could potentially use to offset my mortgage. If I took the loan, I would be spending the company money to pay for all that rather then spend my own and wait for company to reimburse it.

More detail on 'bed & breakfasting' of loans here:

CTM61615 - Close companies: loans to participators: repayment of: bed and breakfasting

Also watch for any benefit in kind if the total of all loans goes above £5k at any point.

If you're reclaiming expenses on a monthly basis then surely the amount the company owes you wouldn't get a huge level? You can even repay yourself more often if it makes a difference.

[Spacecadet]

I found that I am spending a lot of personal money on business related expenses (fuel, hotels etc.) which I could potentially use to offset my mortgage. If I took the loan, I would be spending the company money to pay for all that rather then spend my own and wait for company to reimburse it.

Hotels, trains, planes and a lot of other expenses can be paid for directly from the company with company credit/debit card

[Lumiere]

A loan has to be repaid within 9 months of the company year end to avoid section 419 tax (25% extra CT) - so the second option.

Go careful though - If you borrow the money back the next day and HMRC review your records they will see the second loan as a continuance of the first, and then charge you the s419 you avoided. Plus interest and penalties.

Thanks, so in theory if I borrow it on the day after the coming company year end date I can have it for 12 + 9 months rather than 11.5 with no consequences ?

How should it be done properly to avoid s419 in this case ? A week/month after, or this is another grey area in the revenue's guidelines ?

I found that I am spending a lot of personal money on business related expenses (fuel, hotels etc.) which I could potentially use to offset my mortgage. If I took the loan, I would be spending the company money to pay for all that rather then spend my own and wait for company to reimburse it.

[Clare@InTouch]

Quick question about repaying the director's loan..

If my company's year end is 30/09 and as a director I borrow £5000 today (07/07/2010), when do I need to repay it:

1) 29/09/2010 - so it will not be recorded in the final accounts, then I can borrow it back on 01/10/2010

2) 29/06/2011 - 9 months after the year end, borrow back next day

3) 06/04/2011 - 9 months after the loan was taken, borrow back next day

Thanks

A loan has to be repaid within 9 months of the company year end to avoid section 419 tax (25% extra CT) - so the second option.

Go careful though - If you borrow the money back the next day and HMRC review your records they will see the second loan as a continuance of the first, and then charge you the s419 you avoided. Plus interest and penalties.

[Lumiere]

Quick question about repaying the director's loan..

If my company's year end is 30/09 and as a director I borrow £5000 today (07/07/2010), when do I need to repay it:

1) 29/09/2010 - so it will not be recorded in the final accounts, then I can borrow it back on 01/10/2010

2) 29/06/2011 - 9 months after the year end, borrow back next day

3) 06/04/2011 - 9 months after the loan was taken, borrow back next day

Thanks

[gingerjedi]

Potentially - if HMRC look through the transaction and see it as "bed & breakfast" loan (if they ever looked at it of course). Just make sure you can justify it as two completely seperate loans, rather than the second one purely being a way to avoid the tax implications of having the first one.

It was a "bed & breakfast" loan, I simply didn't have enough money to pay it off so I borrowed some cash from my family for a short period.

Am I right in thinking you can claim back any tax paid on a directors loan once it is repaid?

[Clare@InTouch]

I paid back my outstanding loan of £1900 by the December deadline and borrowed £1800 back again in January, I'm not sure if there will be any fallout from doing this?

Potentially - if HMRC look through the transaction and see it as "bed & breakfast" loan (if they ever looked at it of course). Just make sure you can justify it as two completely seperate loans, rather than the second one purely being a way to avoid the tax implications of having the first one.

[gingerjedi]

I paid back my outstanding loan of £1900 by the December deadline and borrowed £1800 back again in January, I'm not sure if there will be any fallout from doing this?