Ltd Co Directors Loan (Bed and Breakfasting rules)
Discussion
I have a directors loan from my Ltd Co. The money sits in my Mortgage offset account and I pay the Ltd co the normal interest. This is great for the company as it gets 3% on cash rather than bugger all. Its due to be paid back in a few months, which is just a matter of transferring it back.
What are the rules on bed and breakfasting the Loan? It looks like HMRC will hammer any new loan with a CT charge, so how long is it before a new loan could be taken without the additional CT charge? The loan is less than the companies retained profit if that makes a difference (so CT paid)?
I understand the B&B rules are meant to stop loans being used to extract tax free money, then taking short term finance to "pay back" the loan for a short period. All I'm trying to do is get that money working for my company, and putting it in my offset is an easy safe way to make 3%.
I've emailed my accountant but won't get a reply until Monday, plus its always good to hear other peoples experiences.
What are the rules on bed and breakfasting the Loan? It looks like HMRC will hammer any new loan with a CT charge, so how long is it before a new loan could be taken without the additional CT charge? The loan is less than the companies retained profit if that makes a difference (so CT paid)?
I understand the B&B rules are meant to stop loans being used to extract tax free money, then taking short term finance to "pay back" the loan for a short period. All I'm trying to do is get that money working for my company, and putting it in my offset is an easy safe way to make 3%.
I've emailed my accountant but won't get a reply until Monday, plus its always good to hear other peoples experiences.
How are you handling the PAYE Benefit in Kind aspect of the loan?
Bed and Breakfasting is not allowed (there are no monthly, quarterly, annual type time periods).
However, overdrawn loan accounts that have been cleared in full within nine months of the financial year end will not suffer the penalty S.455 Corporation tax charge.
However, HMRC cannot see what transactions have happened in a loan account during the year. All they see is the balance at the financial year end date - and as long as the balance at that date if the right way round, they will be none the wiser.
Of course, there is legislation that is supposed to force directors to self declare when the loan account was overdrawn and for how long - but it is conveniently ignored by most directors.
When quarterly accounting comes in for limited companies in 2020, this type of practice will be much harder to sustain. Indeed, I fully believe that this is one of the driving forces behind the Making Tax Digital initiative.
Bed and Breakfasting is not allowed (there are no monthly, quarterly, annual type time periods).
However, overdrawn loan accounts that have been cleared in full within nine months of the financial year end will not suffer the penalty S.455 Corporation tax charge.
However, HMRC cannot see what transactions have happened in a loan account during the year. All they see is the balance at the financial year end date - and as long as the balance at that date if the right way round, they will be none the wiser.
Of course, there is legislation that is supposed to force directors to self declare when the loan account was overdrawn and for how long - but it is conveniently ignored by most directors.
When quarterly accounting comes in for limited companies in 2020, this type of practice will be much harder to sustain. Indeed, I fully believe that this is one of the driving forces behind the Making Tax Digital initiative.
PurpleMoonlight said:
So if the loan is repaid one day before the 9 month end, and then borrowed one day after the new financial year the accounts would show a loan outstanding one year and then nothing outstanding the next, then repeat.
3 months and a couple of days between loans then.
People do try that type of tactic. It's not allowed under tax rules but at the moment, HMRC are completely relying on company directors and their accountants to be up front about these types of transactions. 3 months and a couple of days between loans then.
MTD for companies will offer them a more frequent window into the day to day transactions of limited companies (or so they think).
They already thought they had done this by insisting that limited company accounts be submitted in formats using iXbrl database systems. Unfortunately for HMRC, the reality is that such data did not give them the ability they wanted to drill down through the nominal ledger postings - which was what they were after.
MTD is the next attack ion this front. I am pretty sure it will also fail on this score too - but it will cause massive grief and cost to businesses as they struggle to implement it.
Don't forget that HMRC initially said that the three monthly submissions were going to be fully detailed with EVERY single transaction listed and supported by digital images of invoices, receipts etc. They have backed off on this as far as sole traders are concerned and are now indicating they will accept quarterly summaries rather than fully detailed transaction histories.
At this stage in the game, we haven't a clue what type of detail they will want when MTD comes in for limited companies. It could very well be that their initial comments will be that they want fully detailed histories of every transaction on every nominal ledger account - because that's what they wanted under iXbrl filing.
And then the fight will begin.
Eric Mc said:
How are you handling the PAYE Benefit in Kind aspect of the loan?
Bed and Breakfasting is not allowed (there are no monthly, quarterly, annual type time periods).
However, overdrawn loan accounts that have been cleared in full within nine months of the financial year end will not suffer the penalty S.455 Corporation tax charge.
However, HMRC cannot see what transactions have happened in a loan account during the year. All they see is the balance at the financial year end date - and as long as the balance at that date if the right way round, they will be none the wiser.
Of course, there is legislation that is supposed to force directors to self declare when the loan account was overdrawn and for how long - but it is conveniently ignored by most directors.
When quarterly accounting comes in for limited companies in 2020, this type of practice will be much harder to sustain. Indeed, I fully believe that this is one of the driving forces behind the Making Tax Digital initiative.
I've no idea on the PAYE BIK aspect. My accountant handles my PAYE and SE so hopefully everything is being accounted for properly. They are a big firm and normally pretty much on the ball. Bed and Breakfasting is not allowed (there are no monthly, quarterly, annual type time periods).
However, overdrawn loan accounts that have been cleared in full within nine months of the financial year end will not suffer the penalty S.455 Corporation tax charge.
However, HMRC cannot see what transactions have happened in a loan account during the year. All they see is the balance at the financial year end date - and as long as the balance at that date if the right way round, they will be none the wiser.
Of course, there is legislation that is supposed to force directors to self declare when the loan account was overdrawn and for how long - but it is conveniently ignored by most directors.
When quarterly accounting comes in for limited companies in 2020, this type of practice will be much harder to sustain. Indeed, I fully believe that this is one of the driving forces behind the Making Tax Digital initiative.
Eric Mc said:
PurpleMoonlight said:
So if the loan is repaid one day before the 9 month end, and then borrowed one day after the new financial year the accounts would show a loan outstanding one year and then nothing outstanding the next, then repeat.
3 months and a couple of days between loans then.
People do try that type of tactic. It's not allowed under tax rules but at the moment, HMRC are completely relying on company directors and their accountants to be up front about these types of transactions. 3 months and a couple of days between loans then.
MTD for companies will offer them a more frequent window into the day to day transactions of limited companies (or so they think).
They already thought they had done this by insisting that limited company accounts be submitted in formats using iXbrl database systems. Unfortunately for HMRC, the reality is that such data did not give them the ability they wanted to drill down through the nominal ledger postings - which was what they were after.
MTD is the next attack ion this front. I am pretty sure it will also fail on this score too - but it will cause massive grief and cost to businesses as they struggle to implement it.
Don't forget that HMRC initially said that the three monthly submissions were going to be fully detailed with EVERY single transaction listed and supported by digital images of invoices, receipts etc. They have backed off on this as far as sole traders are concerned and are now indicating they will accept quarterly summaries rather than fully detailed transaction histories.
At this stage in the game, we haven't a clue what type of detail they will want when MTD comes in for limited companies. It could very well be that their initial comments will be that they want fully detailed histories of every transaction on every nominal ledger account - because that's what they wanted under iXbrl filing.
And then the fight will begin.
If the loan is never repaid - the penalty S.455 CT is retained by HMRC.
If the loan is repaid in full, the penalty S.455 CT will be repaid to the company by HMRC. You may have to wait a long time. I currently have a client who is only getting his S.455 CT back ten years after the original loan was made.
If the loan balance exceeds £10,000 and the company is charging little or no interest to the director, there will be a continuing PAYE Benefit in Kind tax charge as well. That stays current all the time the loan balance remains above £10,000 and little or no interest is being charged.
If the loan is repaid in full, the penalty S.455 CT will be repaid to the company by HMRC. You may have to wait a long time. I currently have a client who is only getting his S.455 CT back ten years after the original loan was made.
If the loan balance exceeds £10,000 and the company is charging little or no interest to the director, there will be a continuing PAYE Benefit in Kind tax charge as well. That stays current all the time the loan balance remains above £10,000 and little or no interest is being charged.
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