Reply to: Directors Loan and Company Expenses

[Craig at Nixon Williams]

Remember that when you put your cash into an offset mortgage, you are saving interest that would otherwise be paid on the borrowing rather than earning interest on savings – this is therefore a tax efficient way of making use of your money. You won’t get taxed on money invested in ISAs of course but the amount that you can invest is limited and the return (on cash ISAs at least, is often poor).

Craig

[youngguy]

Food for thought. Much appreciated everyone.

[northernladuk]

Hi NLUK
interested in hearing how you make the money work for you? I am aware of 'high' risk ventures which could give a return but you could end up losing. If we assume that most people's divi's are used as living costs on a month by month basis, then a venture is likely to need to be low risk, higher return than leaving in co account and immeditaely accessible (or at least within that year). On that criteria, it would probably rule out bonds, ISAs, shares.

I'm monthly at the moment, but like the idea of taking annually and getting a little more.

I switched to an offset mortgage. I think RBS do a 4% one but not sure if that is for existing savers. Although it is a bit more than a normal one the 32k in for most of the year plus other savings brings the equivalent rate down considerably so well worth it for me. Directors loans also add a nice saving but I leave a good year between using that option so there is no chance of it being called B&B.

Rest is as DD says. Even at 1.5% doing this year on year over your contracting career it will mount up.

[Pondlife]

Offset mortgage if you have one. I used to take a £30k dividend on April 7th and whack it in there, and then drew cash against that each month to live off. Simple, no risk solution giving better than the 0.1% interest in the company account. That's where my biggest, no risk savings have come in recent years.

Even sticking it into a decent cash ISA is going to pay more than your business account is going to pay more.

Virgin Money easy access savings account pays 1.5% at the moment, which is more than my company account was paying.

This ^^

[DirtyDog]

Hi NLUK
interested in hearing how you make the money work for you? I am aware of 'high' risk ventures which could give a return but you could end up losing. If we assume that most people's divi's are used as living costs on a month by month basis, then a venture is likely to need to be low risk, higher return than leaving in co account and immeditaely accessible (or at least within that year). On that criteria, it would probably rule out bonds, ISAs, shares.

I'm monthly at the moment, but like the idea of taking annually and getting a little more.

Offset mortgage if you have one. I used to take a £30k dividend on April 7th and whack it in there, and then drew cash against that each month to live off. Simple, no risk solution giving better than the 0.1% interest in the company account. That's where my biggest, no risk savings have come in recent years.

Even sticking it into a decent cash ISA is going to pay more than your business account is going to pay.

Virgin Money easy access savings account pays 1.5% at the moment, which is more than my company account was paying.

[youngguy]

Divi out the yearly allowance as fast as possible and put it somewhere the money can work for you and draw down from that. Why leave it in an accountant paying zero interest for the sake of doing it monthly. I can't get my head around why people do this at all.

Hi NLUK
interested in hearing how you make the money work for you? I am aware of 'high' risk ventures which could give a return but you could end up losing. If we assume that most people's divi's are used as living costs on a month by month basis, then a venture is likely to need to be low risk, higher return than leaving in co account and immeditaely accessible (or at least within that year). On that criteria, it would probably rule out bonds, ISAs, shares.

I'm monthly at the moment, but like the idea of taking annually and getting a little more.

[northernladuk]

£9k - don't forget that £1030

And I assume that includes the interest charge at a minimum of 4%.

And assuming he is going to pay it back within 9 months of his year end (and took it out in that year and not a loan that has been open for years)

[DirtyDog]

So basically, I owe £10k. No recriminations, please

£9k - don't forget that £1030

And I assume that includes the interest charge at a minimum of 4%.

[DirtyDog]

Basically my accountants say that it is either dividends or expenses, I don't get both as a Director. I thought I got the expenses as the employee? Or is it I get the expenses as a Director? Or does it make a difference?

I think I'm starting to get my head around this now. As a director or employee, you are entitled to have the expenses repaid to you that you incur personally (providing they meet the rules for reclaiming expenses). However, you can only pay dividends from the profit - so if you have suddenly turned round and said "oh, you owe me £5k in expenses) and the company has paid out as much profit as it can in dividends already, then they are right - you can either have the expenses to knock off against the loan, or you can take the dividends which have already been paid to you.

I'm faced with a £10k liability to my company (which is being closed down as I ceased trading at the end of October this year) to be paid by Aug 2014

If you have already taken all the profit as a dividend, then you cannot have the expenses repaid. As I understand it, if that's the case, then there wouldn't have been any profit from which to pay the dividend, which means that HMRC could reclassify those dividends that were paid illegally as salary which then attracts NI and income tax.

another accountant says that the £5k expenses should reduce my DL by £5k.

Bear in mind that there will be a bigger picture that your accountant will be aware of that those of us on here are not. If you had no retained profit, then insisting on expenses could leave you in a worse situation if you then have NI and tax to pay on your income that was previously listed as a dividend.

I am typing the letter of disengagement right now....

Make sure you get everything that you / another accountant will need to clear this up - dividend vouchers, meeting minutes signed by a director / company secretary, PAYE details, details of the bank accounts, expenses etc. etc.

[zedmartin]

So basically, I owe £10k. No recriminations, please

[Clare@InTouch]

I’m guessing that there are no retained earnings in the company after the dividend?

By including additional expenses, the amount of profit in the company which can be distributed as dividends is reduced. The amount credited to the director’s account in respect to dividends is therefore reduced by the to the new retained earnings figure but then increased by the expenses figure – the difference in this case would be the corporation tax saving as that can still be taken as a dividend.

I hope this makes sense…
Craig

That would make sense. I've been trying to read between the lines to figure it out and was still puzzled!

[Craig at Nixon Williams]

I’m guessing that there are no retained earnings in the company after the dividend?

By including additional expenses, the amount of profit in the company which can be distributed as dividends is reduced. The amount credited to the director’s account in respect to dividends is therefore reduced by the to the new retained earnings figure but then increased by the expenses figure – the difference in this case would be the corporation tax saving as that can still be taken as a dividend.

I hope this makes sense…
Craig

[zedmartin]

Update time.....
My accountants say that the £5000 expenses does not reduce my Directors Loan balance, because the £5000 reduces the dividends payable to me as a Director. My weekly drawings were made up of Dividend amounts (the greater portion, because of the tax implications) and the smaller amount was salary (and a lower PAYE tax liability).
Basically my accountants say that it is either dividends or expenses, I don't get both as a Director. I thought I got the expenses as the employee? Or is it I get the expenses as a Director? Or does it make a difference? They re-worked my last 5 remittances - thats the documents they issued to me each week showing my weekly amount to draw, based on dividends and salary. These re-worked remittances showed that I was entitled to £1030 additional funds from the company and served to reduce the DL by £1030. That £1030 represents the 20% corp tax relief though, and not the 100% of the £5k expenses. So the ins and outs of dividends etc. why it was done that way and not another way is slightly irrelevant at this point in time. I'm faced with a £10k liability to my company (which is being closed down as I ceased trading at the end of October this year) to be paid by Aug 2014 when everything I have been told by you guys, and another accountant says that the £5k expenses should reduce my DL by £5k. I am typing the letter of disengagement right now....

[northernladuk]

Reading this thread, do you want to bet that the paperwork was signed at the time and is correct?

I am totally with you on that one!

[Craig at Nixon Williams]

*Insert Darren Upton joke here*