Loan

[ASB]

If a company makes £20k profit which it loans to the director for (say) 5 years, does the company have to pay CT on that £20k or does this loan reduce the company profit and the company just has to pay the 25% S455 charge?

The loan does not reduce the profit. So tax will be paid on the profit at prevailing rates. Tax will also be paid on the outstanding balance at the relevant point and reclaimed on redemption.

[Wanderer]

If you pay your company interest at HMRC's interest rate of 4% of the loan amount each month then you eliminate the BIK issue. However, the company will have to pay £5k s455 tax (holding tax) over to HMRC which it will get back once the original £20k has been repaid.

If a company makes £20k profit which it loans to the director for (say) 5 years, does the company have to pay CT on that £20k or does this loan reduce the company profit and the company just has to pay the 25% S455 charge?

[Peoplesoft bloke]

I would hate to be rude to one of our more senior and reputable posters but you could try doing a search of this site.

Use the work 'loan' , use titles only and pick business and accountants forums. Loads of questions on this theme.

http://forums.contractoruk.com/accou...an-offset.html

http://forums.contractoruk.com/accou...-get-loan.html

http://forums.contractoruk.com/accou...-interest.html

I dunno about reputable - many thanks for those links - I have given myself a slap (really) for not following simple advice I've doled out a hundred times.

[Greg@CapitalCity]

The tax office regards a loan of over £5,000 as a personal taxable benefit. Note the entire loan is assessed as a personal benefit, not just the amount exceeding £5,000.

To eliminate the personal taxable benefit, you need to pay your company interest from your personal bank account on the loan balance at a rate of 4.00% (check HM Revenue & Customs: Beneficial loan arrangements - official rates to updated rates for the future).

I suggest the loan interest is calculated and paid annually for every personal tax year the loan is outstanding (i.e. for each year to 05 April). The interest is calculated on the average loan balance for the year, and the HMRC have guidance on how to do this - HM Revenue & Customs: Loans - work out the value to use

You will also need to draw up a loan agreement between yourself and your company to record the loan details, and interest payments that will be made.

As the loan will not be repaid within nine months of the company year end, the company will incur a corporation tax charge of 25% of the loan balance outstanding at year end. This tax is ‘temporary’, and is repaid back to the company once the loan balance is settled.

[Craig@Clarity]

If you pay your company interest at HMRC's interest rate of 4% of the loan amount each month then you eliminate the BIK issue. However, the company will have to pay £5k s455 tax (holding tax) over to HMRC which it will get back once the original £20k has been repaid.

Consider whether the loan means tying up your profit or capital too. but other than that there is nothing dodgy about it as long you account for the interest and tax.

[northernladuk]

What are the implications of MyCo offering a largish (20k) loan to a (the) director over a 10-15 year term at preferential rate?

Surely it's a legal (if taxable) benefit? Or would it be highly dodgy?

I would hate to be rude to one of our more senior and reputable posters but you could try doing a search of this site.

Use the work 'loan' , use titles only and pick business and accountants forums. Loads of questions on this theme.

http://forums.contractoruk.com/accou...an-offset.html

http://forums.contractoruk.com/accou...-get-loan.html

http://forums.contractoruk.com/accou...-interest.html

[Peoplesoft bloke]

What are the implications of MyCo offering a largish (20k) loan to a (the) director over a 10-15 year term at preferential rate?

Surely it's a legal (if taxable) benefit? Or would it be highly dodgy?