Reply to: Contractor with offset mortgage

[Olly]

Yup sorry didn't make it crystal clear, of course a standard director's loan is legit, I wouldn't have bothered with all that blurb otherwise. It's the deposit of Ltd money in a personal account and not declaring it as a loan or BIK that's not proven.

Investec business Hi 5 is around 3.03% for balan....STOP PRESS They stopped running it, damn, I sent application yesterday

arrrrrgh...I'm only on 1.75 at scottish widows. Bugger damn bugger...sorry can't type anymore, too flipping cross with myself

[TheFaQQer]

Have a read of this then. HM Revenue & Customs: Directors' loan accounts and Corporation Tax explained

I don't see anywhere that it says that it's lot "legit". The only caveat is that it must be paid back by company's year end or by 9 months after the year end otherwise you get hit with the 25% tax charge.

I presume this is to deter people taking a perpetual loan from the company and paying nothing to HMRC in tax because the company doesn't make any profit?

As I said before, I'm not an accountant and I don't even take directors loans so I could be completely wrong here.

The taking of a loan is legit.

Whether you can draw up an agreement that you will merely hold the funds for the company in your account, untouched, is a different matter. This is what Puma was suggesting that some of his clients do - they have a deed of trust which states that you are holding the money for the company. The argument could well be that it is better for the company because it is earning negligible interest where it is, but is protected by the banks going bust legislation.

That's the bit that is dubious.

[Wanderer]

Assuming you take money from company only below the higher rate threshold and always willl (last bit is a fairly big assumption) then you pay 4K interest to your Ltd and it pays £800 in tax and you can draw the £3200 as dividend.

Now the total cost of borrowing 100K is £2400.

Soooooo...if you will never take money from your Ltd at higer rate then you're quids in if your mortgage rate > 2.4%

Correct, presuming that you could actually get a 2% return from your company funds which might not be the case if you had less than 100k, also it might not be instant access (which your offset mortgage may be). With the tax payable being 20% (rather than the "about 30%" I erroneously stated) your company's effective interest on loans between £5,000 and £99,999 is 4%. Paying that interest back to you in a dividend makes it effectively a 1.2% interest loan to the director and a 4% return to the company with instant access. Surely this makes good business sense?

Now then, depositing your Ltd's money in your loan account - people have and do do it. The FACT is nobody has produced any evidence that HMRC have been consulted and accept this. I guess the risks of been picked up are probably small but the chance of them accepting it as legit even smaller. If they let you off with just paying it back to your Ltd with interest then happy days. Doubt they would though.

Have a read of this then. HM Revenue & Customs: Directors' loan accounts and Corporation Tax explained

I don't see anywhere that it says that it's lot "legit". The only caveat is that it must be paid back by company's year end or by 9 months after the year end otherwise you get hit with the 25% tax charge.

I presume this is to deter people taking a perpetual loan from the company and paying nothing to HMRC in tax because the company doesn't make any profit?

As I said before, I'm not an accountant and I don't even take directors loans so I could be completely wrong here.

[Olly]

Just thought I'd chip in here as it's something I'm considering.
The "loan yourself the money" is a safe way. Yes you'll have to jiggle about with paying it off each year etc but the bottom line is 4% - your corp tax (which will be dropping to 20% I believe in for 2011, not about 30%).

An example
Let's say you want to borrow 100K from your Ltd.
If you do, then your Ltd forgos 2% bank interest that it would have paid 20% on = £1,600.
Assuming you take money from company only below the higher rate threshold and always willl (last bit is a fairly big assumption) then you pay 4K interest to your Ltd and it pays £800 in tax and you can draw the £3200 as dividend.

Now the total cost of borrowing 100K is £2400.

Soooooo...if you will never take money from your Ltd at higer rate then you're quids in if your mortgage rate > 2.4%

Now then, depositing your Ltd's money in your loan account - people have and do do it. The FACT is nobody has produced any evidence that HMRC have been consulted and accept this. I guess the risks of been picked up are probably small but the chance of them accepting it as legit even smaller. If they let you off with just paying it back to your Ltd with interest then happy days. Doubt they would though.

[eek]

I dont feel this question has ever been satisfactorily resolved.

We had several "you cant do that" opinions mostly from northernthing who has an opinion on most things he knows nothing about, and others who like to have £20k sat in company funds while paying interest on £20k on their mortgage.

We also had another guy say yes you can, you just need the proper documentation.

And that guy was the puma an accountant based in Watford I believe.

There is a general issue with offset mortgages in that they aren't covered or easily definable within the tax laws.

The real issue is about taking company money and transferring it to a personal account and you are going to have a general difficulty in explaining why you want to do that.

Now there is a reason why you may wish to do that (its to do with how banks would work in bankruptcy) and I'm sure the tax man while annoyed would not be able to argue against it with the right paperwork in place but I wouldn't expect your average accountant to be willing it listen to the plan and then agree to it.

[Wanderer]

As long as I'm disciplined and don't spend the money, I should be fine.

And get the agreement of your accountant who will understand the finer points of this.

The other thing is that you will either get hit with tax as a BIK for the loan OR you can pay interest at the official HMRC rate (currently 4%) which then becomes income for your company and you pay it back to yourself minus whatever tax you pay on your company's fees (typically about 30%) so your effective interest rate on the loan is about 1.2%.

I dont feel this question has ever been satisfactorily resolved.

Agreed! I am NOT an accountant and I don't take directors loans either. People need to get professional advice and backing from their accountant before doing this.

[escapeUK]

I dont feel this question has ever been satisfactorily resolved.

We had several "you cant do that" opinions mostly from northernthing who has an opinion on most things he knows nothing about, and others who like to have £20k sat in company funds while paying interest on £20k on their mortgage.

We also had another guy say yes you can, you just need the proper documentation.

[Tilamok]

Blah, it's been discussed at great length here. Try doing a search for "Director's loan".

Presuming you are the only shareholder, it's your company so you can do what ever the hell you like with it. If the company makes an interest free loan then you pay tax on the benefit in kind. If you get investigated then they may seek to treat the loan as salary (especially if the "loans" are taken out weekly/monthly) and whack you with a big PAYE/NI bill. Read all about director's loans here: HM Revenue & Customs: Directors' loan accounts and Corporation Tax explained

Ask your accountant for advice, though they will probably tell you not to do it because people have a habit of clearing out the company's bank account, spending the money and then having none left when it comes to pay the tax man in a year or so, thus getting themselves in all manner of tulip and generally upsetting Hector.

I think that you have the million dollar answer
As long as I'm disciplined and don't spend the money, I should be fine.
Thanks

[Wanderer]

1) Move money from my business a/c to my mortgage a/c without paying immediately any monies to tax/vat. Then just before the end of the tax year, pay as a lump sum any monies due to tax/vat???

Blah, it's been discussed at great length here. Try doing a search for "Director's loan".

Presuming you are the only shareholder, it's your company so you can do what ever the hell you like with it. If the company makes an interest free loan then you pay tax on the benefit in kind. If you get investigated then they may seek to treat the loan as salary (especially if the "loans" are taken out weekly/monthly) and whack you with a big PAYE/NI bill. Read all about director's loans here: HM Revenue & Customs: Directors' loan accounts and Corporation Tax explained

Ask your accountant for advice, though they will probably tell you not to do it because people have a habit of clearing out the company's bank account, spending the money and then having none left when it comes to pay the tax man in a year or so, thus getting themselves in all manner of tulip and generally upsetting Hector.

[Tilamok]

You already asked this question once in one of your other threads below..

http://forums.contractoruk.com/gener...tml#post832753

What is more annoying is that you were also told in that thread this has been done a load of times so use the search. Instead you post it twice??

Sorry
Could u please delete the thread if u can

Thanks

[northernladuk]

You already asked this question once in one of your other threads below..

http://forums.contractoruk.com/gener...tml#post832753

What is more annoying is that you were also told in that thread this has been done a load of times so use the search. Instead you post it twice??

[prozak]

it is not your money.

you either need to

1. pay a salary
2. pay a dividend
3. loan the money to the director (bik implications)

[Tilamok]

Thanks for the replies

I have removed the "pinch" because this is a secondary issue and losing focus on what I was really after.

[TheFaQQer]

My question is :- Can I either
1) Move money from my business a/c to my mortgage a/c without paying immediately any monies to tax/vat. Then just before the end of the tax year, pay as a lump sum any monies due to tax/vat???

I'm not trying to scam anyone, just trying to delay payment to tax/vat so that I pay less interest on my mortgage

To take money out of the company, you need either a directors loan or to declare a dividend. Dividends can only be paid out of profit. If you take out a loan which is too large, then it counts as a benefit in kind and you pay tax on it. The loan also needs to be repaid.

2) Another way to do point 1 above, is to get a business account that can gives a no-interest loan that matches the balance in the business account. Does anyone know of such business accounts?

No. Can't think of why anywhere would be offering a 0% loan.

I can appreciate that many might say that contractors should not be money savers but I'm in a bit of a pinch at the moment.

You need to learn that the money in the company is not yours, regardless of how tight the pinch is. If you confuse the two, then you are going to end up in all sorts of bother.

If you have money in the company account which is profit, then declare a dividend and stick the money in your offset mortgage. Then draw against that over the year as you need to, rather than having salary.

Also - if you can't save money, contracting probably isn't the answer, to be honest. If things are tight now, how will they be when the first contract ends and you are out of work for 6 months before another one comes along?

[b0redom]

You don't pay VAT when you remove money from the company, you (usually) pay it quarterly on your sales.

The company money belongs to the company, not to you, so no you can't just move it around willy-nilly.

Various methods of doing what you suggest have been mooted, but as far as I know the fact that it's not being done by lots of people means they are potentially quite dodgy - talk to your accountant.

"I can appreciate that many might say that contractors should not be money savers but I'm in a bit of a pinch at the moment."

Are you really sure you should be starting contracting now then? I presume you're moving from a permie role? It's not for the faint of heart, or a get rich quick scheme - it's a lifestyle choice, and you may have weeks / months of voids where you're not working.