Reply to: Loan the money in business account

[Pondlife]

I think, anyone who is guessing the answer instead of replying something they know for definite is a disgrace.

This is a wind up right?

The advice you get on here is worth exactly what you've paid for it. It's free so be grateful for what you get.

People are taking their time to offer assistance to you and you reply with that attitude.

[Platypus]

All anyone can do on a public forum is post what they know and share experiences. I don't think NLUK did more than that. but he did then back up his post with some good links.

No need to be so harsh!

[krytonsheep]

Never mix business and pleasure.

WHS. The golden rule is to never lend money to friends or family, regardless of whether it's from a business account or a personal one. If you do, it'll instantly change the relationship you have with that person and will potentially end up in a world of pain.

[mudskipper]

I think, anyone who is guessing the answer instead of replying something they know for definite is a disgrace.

If you want an answer from someone who knows for definite, then try paying an accountant rather than asking on a public forum. If someone has taken the trouble to reply in good faith to your post, it seems rather ungrateful to call them "a disgrace". If you take any reply from a public forum and put it into practice without first verifying that advice yourself, then you're asking for trouble.

Much of the time with HMRC's rules, there is no definite answer. Take IR35. Or Christmas parties. Or iPhones vs other smart phones.

[TheFaQQer]

I have taken a 5k loan this year because I bought a house. Will pay it back in the new financial year. It's the Company's money and why can' people understand that?

can't?

[Old Greg]

2. Take a loan but never a penny more than £5k and you (and your accountant) will have an easy life as per NLUK's suggestion. No tax, no BIK, no implications. Obviously this is not always the answer people want to hear when they've got £50k burning a hole in the company's pocket and earning 0.000001% interest in one hand and a £50k flexible mortgage debt in the other.

I have taken a 5k loan this year because I bought a house. Will pay it back in the new financial year. It's the Company's money and why can' people understand that?

[Wanderer]

This all seems a bit harsh to NLUK.

I agree. Although NLUK takes a somewhat conservative view on tax things he does give some good links to past discussions to support his views.

I don't take director's loans but I did post a question about them which may be worth reading.

Possible options are:

1. Don't take a director's loan at all.

2. Take a loan but never a penny more than £5k and you (and your accountant) will have an easy life as per NLUK's suggestion. No tax, no BIK, no implications. Obviously this is not always the answer people want to hear when they've got £50k burning a hole in the company's pocket and earning 0.000001% interest in one hand and a £50k flexible mortgage debt in the other.

3. Have a board meeting (minuted) where it's decided that the director will take a big director's loan but pay it back with 4% interest before the company year end so you don't have to declare it on the company's tax return or in any case by 9 months after the year end so you don't have to pay the 25% tax charge on it. The company makes a fantastic, low risk (!) return on it's loan and the director gets a loan for a net cost of about 1%. Everyone's a winner including HMRC who get more tax out of the deal! That's got to make good business sense surely?

4. Take a big director's loan but pay it back without interest before the company year end so you don't have to declare it on the company's tax return or by 9 months after the year end so you don't have to pay the 25% tax charge on it. You may then have to pay tax on this as a benefit in kind (eg an interest free loan) and this may be more expensive than paying the interest under option 3 whereby the interest becomes company profit which you withdraw as a dividend. Can't see the attraction of this option.

5. Set up a deed of trust whereby the company puts money in your personal bank account but it's still the company's money as suggested by THEPUMA. Can't comment on this one.

The problem is that there is no straight answer and I don't think anyone is especially happy about the subject. In particular I get annoyed when I read about how HMRC "don't like" anything other than option 1 or 2 and they "may" try and force you to treat the loan as salary. However, I get the impression that if the loans are irregular and you have a formal board meeting to approve them then they can't really argue the point about it.

I also get the impression that the accountants don't want to encourage it because it 1. complicates your tax affairs and 2. there is a danger that the director will spend all the money on high living then default on the loan causing all manner of tulip to hit the fan.

Other info:

HM Revenue & Customs: Directors' loan accounts and Corporation Tax explained
HM Revenue & Customs: Beneficial loan arrangements - official rates

[Old Greg]

This all seems a bit harsh to NLUK. I value his input and know he is not an accountant, so take this into consideration. It opens up discussion and leads to a better personal understanding. Perhaps if people don't want to start a discussion, they should ask their accountant.

[northernladuk]

Hi NLUK, have you any links for this assertion?

I thought it was ok to do just that.

GOT IT!! Not before I have made a right mess of this thread though Sorry OP. My bad.

Directors Loan Account : Brookson

HMRC’s view
These rules are in place to ensure that directors are unable to simply borrow money from their company instead of paying dividends and not pay any tax. Despite these rules being in place it is an area that HMRC may pay particular attention to if they choose to enquire into your personal or company tax affairs. HMRC may look for regular patterns of loans being taken from the company and or repaid by the director and argue that this should be treated as additional salary giving rise to tax and National Insurance.

What is our advice?
We do not advise that you take money out of your limited company as a director’s loan which results in the loan account becoming overdrawn due to the tax liabilities and added complexity this adds to your affairs. We do recognise that there may be commercial reasons for you needing to borrow money from the company (e.g. a short-term need for personal finance) however; we would encourage you to consider the implications of doing this.

and

<snip>

One suggested idea is to pay the loan off the day before the nine month end and then take it out the day after. However, tax is avoided as in substance there is a loan throughout the period in question and likely to get caught. If you repay the loan a few days before and take it out a few days later then HMRC are likely to argue substance over form. I.e. that essentially there was a loan throughout and the 25% should be accounted for.

[tyut4669]

Read through it. It is a different question gentleman.

It is also not the first time you have asked a question about 10K directors loan

http://forums.contractoruk.com/accou...ml#post1275886

or other posts about the mess your accounts appear to be in.

But anyway.....

In this case I am almost sure that end to end loans are not good. I can't prove it so will edit original post to remove offending assumption

[northernladuk]

I completely agree. And, this is not the first instance that I have experienced this.

It is also not the first time you have asked a question about 10K directors loan

http://forums.contractoruk.com/accou...ml#post1275886

or other posts about the mess your accounts appear to be in.

But anyway.....

In this case I am almost sure that end to end loans are not good. I can't prove it so will edit original post to remove offending assumption

[tyut4669]

I completely agree. And, this is not the first instance that I have experienced this.

I think, anyone who is guessing the answer instead of replying something they know for definite is a disgrace.

[tyut4669]

I completely agree. And, this is not the first instance that I have experienced this.

[escapeUK]

Can I not take 10K off business account and pay back 10,400 before year end closes? Does it become benefit in kind.

northernladuk, Please do not respond, if you are not clear. I would appreciate someone give me a precise answer.

Not knowing the answer never stops him from replying, which is why he is the only person I have on ignore

[northernladuk]

Can I not take 10K off business account and pay back 10,400 before year end closes? Does it become benefit in kind.

northernladuk, Please do not respond, if you are not clear. I would appreciate someone give me a precise answer.

Yer, sorry about that. I have backed it up with a load of links for reference where I can.

I found these by searching and there are plenty more I couldn't be bothered to read as this has been asked many times. Try it, you might like it.