Reply to: Director loan account query

[northernladuk]

yep, i could imagine a newbie contractor on a three month gig, taking his entire first months gross income as a loan, blowing the lot on beer and hookers, then not getting a renewal.... what a mess that would lead to...

Indeed.

[Joeman]

Wow. That sounds like an open invitation for some people to shaft themselves royally. Enough people manage to do it when it is illegal let alone when it is allowable.Didn't know that. Thanks.

yep, i could imagine a newbie contractor on a three month gig, taking his entire first months gross income as a loan, blowing the lot on beer and hookers, then not getting a renewal.... what a mess that would lead to...

[NLUKbot]

Can I what the advantages are of taking a loan from the company if any ? thanks

NLUKbot recommends searching for *BENEFITS OF DIRECTORS LOAN*

NLUKbot search results

[northernladuk]

Can I what the advantages are of taking a loan from the company if any ? thanks

I am afraid not sorry. It is against the rules.

[blinko]

Can I what the advantages are of taking a loan from the company if any ? thanks

[Craig@Clarity]

For anyone who needs a link, the 4% is taken from HMRC's website here: HM Revenue & Customs: Beneficial loan arrangements - official rates

[Clare@InTouch]

That 4% interest sounds low- could I for example take a directors loan of say £40,000 and for the subsequest years pay the 4% interest until I repay it?

And if I could do the above, is it one of those grey areas where you can do it but it is a bit dodgy and could be used against you in some way or other?

The 4% interest will stop it being a benefit in kind, but it won't stop the Section 455 charge. Any loan outstanding at the year end and not repaid within 9 months will result in extra CT equal to 25% of the loan balance. Conveniently, that's the same tax liability as if you'd taken a higher rate dividend (S455 being paid by the company and dividend tax being paid by you).

The extra CT is however repaid to you 9 months after the year end in which you repay the loan.

[northernladuk]

That 4% interest sounds low- could I for example take a directors loan of say £40,000 and for the subsequest years pay the 4% interest until I repay it?

And if I could do the above, is it one of those grey areas where you can do it but it is a bit dodgy and could be used against you in some way or other?

Funnily enough Scraggy did an example of this using this exact figure. The thread is here.

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

We went in to loans in some details in a few threads and it wasn't straight forward I believe. Looking for the thread now.

[Nixon Williams]

That 4% interest sounds low- could I for example take a directors loan of say £40,000 and for the subsequest years pay the 4% interest until I repay it?

And if I could do the above, is it one of those grey areas where you can do it but it is a bit dodgy and could be used against you in some way or other?

You could but the company would be liable for a tax charge of 25% if the loan was outstanding 9 months after the company's year end.

Not a recommended strategy.

Alan

[northernladuk]

A dividend MUST come from profits, but a loan does not have to - not something we would recommend, but a loan can be taken from the working capital.

Provided the director(s) are confident that they can meet the company liabilities as they fall due, then provided the loan is authorised by the shareholders, a loan can be made.

Alan

Wow. That sounds like an open invitation for some people to shaft themselves royally. Enough people manage to do it when it is illegal let alone when it is allowable.Didn't know that. Thanks.

[SneakySimon]

Question

That 4% interest sounds low- could I for example take a directors loan of say £40,000 and for the subsequest years pay the 4% interest until I repay it?

And if I could do the above, is it one of those grey areas where you can do it but it is a bit dodgy and could be used against you in some way or other?

[Nixon Williams]

You quoted my statement but not seeing the correlation? My comment was around any loan, at whatever limit must come out of profits. This is based on the number of people we get coming on here dipping in to CT and VAT money for personal use too often.

A dividend MUST come from profits, but a loan does not have to - not something we would recommend, but a loan can be taken from the working capital.

Provided the director(s) are confident that they can meet the company liabilities as they fall due, then provided the loan is authorised by the shareholders, a loan can be made.

Alan

[northernladuk]

A a loan is only allowed under the Companies Act 2006,
if there is prior shareholder approval although there is an exemption if the loan(s) does not exceed £10,000.

This £10,000 amount should not be confused with the £5,000 limit relating to the taxation of a directors loan.

Sadly, this is yet another area where different figures are used for very similar purposes, it seems purely to confuse the general public!

You quoted my statement but not seeing the correlation? My comment was around any loan, at whatever limit must come out of profits. This is based on the number of people we get coming on here dipping in to CT and VAT money for personal use too often.

[Nixon Williams]

Not knowing your previous situation and state of your financial affairs but.... This 20k was pure profit and not money owed to the VAT man or for CT? If it wasn't there is also a legal issue around you loaning yourself money that isn't yours.

Why did you need it urgently and then have it lying around in your bank? Can't have been that urgent.

A a loan is only allowed under the Companies Act 2006,
if there is prior shareholder approval although there is an exemption if the loan(s) does not exceed £10,000.

This £10,000 amount should not be confused with the £5,000 limit relating to the taxation of a directors loan.

Sadly, this is yet another area where different figures are used for very similar purposes, it seems purely to confuse the general public!

[northernladuk]

Not knowing your previous situation and state of your financial affairs but.... This 20k was pure profit and not money owed to the VAT man or for CT? If it wasn't there is also a legal issue around you loaning yourself money that isn't yours.

Why did you need it urgently and then have it lying around in your bank? Can't have been that urgent.