Reply to: Wife - taking director's loan

[TheCyclingProgrammer]

If (which would be highly unlikely but not impossible) the director had no shareholding then it is different.

CTM61540 - Close companies: loans to participators: exclusion of certain loans

In practice I think it is highly unlikely any loans made by the average contractor company would be exempt from the S455 charge - especially with the recent tightening of the rules.

Interesting, thanks for the link. Like you say though, it's unlikely to apply in most of our cases (or in OPs case either unless she has < 5% shareholding if I'm reading that link correctly).

I think OP needs to ask himself why they want to do what they propose. There are some genuine situations where a directors/shareholders loan up to a certain amount can be useful in some scenarios and as Martin already pointed out, the beneficial loan threshold goes up from £5k to £10k.

OP: you need to have a good think about why you want to do this (and why you can't just take the loan yourself) and make sure you've discussed it thoroughly with your accountant before proceeding because as others have warned, there isn't much room for error if you balls this up.

Personally, I do strongly believe (and my accountant has also advised this) that a genuine loan from your company should be backed up with a written commitment to repay it in a certain period with a proper repayment plan in place. It might not be necessary from a legal point of view but it shows due diligence and that you've seriously considered how they loan will be repaid.

[ASB]

What are the s455 implications in loaning to another participator or relative of, versus a director? (Genuine question, I thought s455 applied in either case)

If (which would be highly unlikely but not impossible) the director had no shareholding then it is different.

CTM61540 - Close companies: loans to participators: exclusion of certain loans

In practice I think it is highly unlikely any loans made by the average contractor company would be exempt from the S455 charge - especially with the recent tightening of the rules.

[TheCyclingProgrammer]

And some of that detail MAY be in the articles of association. In any event there are different S455 implications.

What are the s455 implications in loaning to another participator or relative of, versus a director? (Genuine question, I thought s455 applied in either case)

[TheCyclingProgrammer]

No. Short and sweet but a director's loan requires being a director.

Except it's actually a participators loan and can be made to any shareholder subject to the normal rules. I've made use of my partners loan account before now to account for an accidental double payment of salary, although this was subsequently repaid.

Whether it's a good idea to make use of this facility or not, in addition to the directors loan account, is a different matter, as Martin pointed out. I certainly wouldn't consider it unless there was a documented and realistic repayment plan in place and the companies ability to pay its liabilities remained unaffected. Normal s455 and NI caveats apply too of course.

If you have significant retained profit in the company, probably not so risky (you can always declare a dividend to clear the loan).

[Martin at NixonWilliams]

Nicely put and couldn't agree more. I do believe that the more people use these methods without understanding the basics of their company the higher it will start to climb on HMRC's radar. I doubt they will deal with it properly but the more it becomes evident to them people are using the loopholes without understanding the more interested they will become. Just my opinion of course.

The most common problem this causes is when the company is to be wound up and the final CT bill cannot be paid. Although I haven't seen any evidence of HMRC noticing or questioning the cause of this being through the misappropriation of directors loans, it does seem that they will now object to the strike off of a company until the taxes are paid, whereas a few years ago a lot (some with vast sums owing) were slipping through the net far too easily.

[ASB]

That doesn't mean you cannot loan her money in another capacity. The devil is in the detail

And some of that detail MAY be in the articles of association. In any event there are different S455 implications.

[northernladuk]

This. For every person who manages to do well by cleverly playing round the rules, there's a dozen others who cock it up, forgetting to repay in time, or inadvertently breach some other threshold and end up getting in a mess.

Far too many people worry about the clever stuff when they should concentrate on the basics.

Nicely put and couldn't agree more. I do believe that the more people use these methods without understanding the basics of their company the higher it will start to climb on HMRC's radar. I doubt they will deal with it properly but the more it becomes evident to them people are using the loopholes without understanding the more interested they will become. Just my opinion of course.

[Clare@InTouch]

From HMRC website:

HM Revenue & Customs: Directors' loan accounts and Corporation Tax explained

What is a participator in a close company

HMRC defines a participator as a person who has a share or 'interest' in a company. A participator is usually a shareholder who could also be a director. A participator includes any 'associate' - for example, spouse or civil partner, business partner, relative, trustee, or a loan creditor. A participator's interest in a company can be in its capital (for example shares) and/or in the income of the company.

HMRC defines a 'close company' for Corporation Tax purposes as a company that is controlled directly or indirectly by 5 or fewer participators - or any number of participators if they are all directors.

Please note that these are not necessarily the same definitions used by other HMRC tax areas (for example VAT), other government agencies (for example Companies House), or various accounting conventions used to prepare audited accounts.

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You guys just know how to monkey around, nothing else. Sorry. You have no seriousness or knowledge about managing the company.

As HMRC says, there is no need to make her director. Simple, isn't it? I think you should join CUK awards and I am sure you will lose there as well due to your silly answers.

Thanks Nixon Williams for the correct answer.

The answer to whether you can give a director's loan to your wife is still a no, as she isn't a director.

That doesn't mean you cannot loan her money in another capacity. The devil is in the detail

[kembljoe]

I think we need a new catagory in the CUK awards for questions like this.

From HMRC website:

HM Revenue & Customs: Directors' loan accounts and Corporation Tax explained

What is a participator in a close company

HMRC defines a participator as a person who has a share or 'interest' in a company. A participator is usually a shareholder who could also be a director. A participator includes any 'associate' - for example, spouse or civil partner, business partner, relative, trustee, or a loan creditor. A participator's interest in a company can be in its capital (for example shares) and/or in the income of the company.

HMRC defines a 'close company' for Corporation Tax purposes as a company that is controlled directly or indirectly by 5 or fewer participators - or any number of participators if they are all directors.

Please note that these are not necessarily the same definitions used by other HMRC tax areas (for example VAT), other government agencies (for example Companies House), or various accounting conventions used to prepare audited accounts.

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You guys just know how to monkey around, nothing else. Sorry. You have no seriousness or knowledge about managing the company.

As HMRC says, there is no need to make her director. Simple, isn't it? I think you should join this new "category" (not catagory, learn english first) of CUK awards and I am sure you will lose there as well due to your silly answers.

Thanks Nixon Williams for the correct answer.

[Maslins]

Our advice is always to avoid directors loans where possible. If you are certain the loan can be repaid by a suitable date then it can be fine but in my experience this often proves to be difficult which can lead to a number of other issues later down the line.

This. For every person who manages to do well by cleverly playing round the rules, there's a dozen others who cock it up, forgetting to repay in time, or inadvertently breach some other threshold and end up getting in a mess.

Far too many people worry about the clever stuff when they should concentrate on the basics.

[Martin at NixonWilliams]

As ASB points out, I assume it is your intention to use two lots of the £5,000 limit available before having to pay interest or declare the benefit in kind? (this is changing to £10,000 from April). If so you can loan the money to your wife without her being a director.

Be aware of the implications this might have on your company's ability to pay its taxes on time and the additional taxes that may be due as a result of the loan(s).

Our advice is always to avoid directors loans where possible. If you are certain the loan can be repaid by a suitable date then it can be fine but in my experience this often proves to be difficult which can lead to a number of other issues later down the line.

Martin

[Clare@InTouch]

You could just take a loan yourself and pay interest at 4%. That would avoid any tax implications or indeed any faffing around trying to find a way around the legislation (assuming you're trying to do the 2x£5k as mentioned above!).

[Scruff]

Is this someone's new blithering sockie?

If not, go to "Begin" and engage an Accountant

[ASB]

I wonder what your motivation for that may be. 2 x 5k perhaps?

Of course you have a variety of ways forward.

make her a director.

Borrow the money youself.

lend her the money anyway.

all these will have different taxation consequences of course.

[northernladuk]

No. Short and sweet but a director's loan requires being a director.

I think we need a new catagory in the CUK awards for questions like this.