Repaying a previous year's Director's Loan after further Director's Loan taken

[northernladuk]

Paid with 4% interest you mean?

[Craig@Clarity]

You've also got GAAR to contend with http://www.hmrc.gov.uk/avoidance/gaar-part-abc.pdf and HM Revenue & Customs: The General Anti-Abuse Rule

[Guest22]

Thanks for the info. With my situation, I think the 30-day rule is one thing, but I also think relief would be denied for the other reasons you mentioned concerning rolling the benefit and making a payment just to get around the rules. Like you said, to keep it simple, the whole amount should probably just be paid off.

[northernladuk]

Also to note is a comment on page 13 of the document below...

http://webarchive.nationalarchives.g...ticipators.pdf

In addition, even if the 30 day rule does not apply to deny relief, relief will be denied if
there are amounts (loans, advances of money from the close company or through an
extraction of value) outstanding amounting to at least £15,000 and at the time of a
repayment there are arrangements, or an intention, to redraw an amount, either through
a loan or advance of money from the close company or through an extraction of value
as described in Chapter 3 of this Technical Note and an amount is subsequently
redrawn.

Am not a very clever chap but I believe if you are talking 25K then you will get caught as the 30 day rule won't work for values over 15k.

[northernladuk]

There were new rules to tighten up on Bed and Breakfasting brought in in March I believe. Not massive changes to the framework but changes to the timescales. You already mentioned them so it appears you are probably aware of them...

http://forums.contractoruk.com/accou...ive-today.html

It would appear your situation would allow a false corp tax situation to benefit you so clearly will not be allowed by HMRC. There is also the benefit to the invididual by way of a tax free loan. By clearing it and then opening it again HMRC can quite easily argue the benefit is rolling and the payment was just to get around the rules. Pretty open and shut case you would have thought.

With two possible lines of attack from HMRC I would avoid this one like the plague.

[Wanderer]

What are people's thoughts?

I'm not an accountant but I'm inclined to agree with you - I think HMRC would call it "bed and breakfasting" then then make the company pay the Section 455 tax, plus interest and penalties as well as giving the accountant a rap over the knuckles for their stupidity.

[Guest22]

If a Director's Loan of £5000 was taken in 2012/13 accounting year and then further director's loans were taken in the 2013/14 accounting year totalling £25,000, to avoid paying Corporation Tax on the loan, I understand from here that the DLA must be repaid "in full within 9 months".

I asked my accountant about this and she told me that only the £5000 needs to be paid off by way of an unpaid dividend (assuming there's enough profit). But that's only paying off that particular director's loan off in full; it's not paying off the director's loan account in full; so, I'd like to know the forum's opinion on this. It concerns me because it seems too easy for someone to just take further director's loans, therefore not eating into the company's profit, and then just pay off a previous loan with said profit in the aforementioned manner. Or, how about this: one takes a loan for £50,000 in one year; the next year, they take another loan for £50,000 (now the DLA is £100,000), wait 31 days then pay £50,000 back into the DLA and say it's to pay off the previous year's loan. They could do this every year and never pay tax on £50k (only BIK interest).

It doesn't seem right. My opinion is that the DLA must be paid in full within 9 months of the end of an accounting period to avoid tax on director's loan taken in said accounting period regardless of further loans that are taken out, and that the 30-day rule in the aforementioned link only applies when the DLA has been fully paid off - otherwise, tax remains due regardless.

What are people's thoughts?

Thanks