Discussion
Purely hypothetically of course...
My income for 2016-17 is at the threshold where I will start to lose my personal allowance. I need another £20k in my coffers to last me until April 5th.
My Ltd company accounting year starts from tomorrow, so I could take a directors loan then repay it after April 5th, thus avoiding a £4k tax bill.
Disregarding the ethics of this, does this type of activity raise alarm bills with HMRC?
My income for 2016-17 is at the threshold where I will start to lose my personal allowance. I need another £20k in my coffers to last me until April 5th.
My Ltd company accounting year starts from tomorrow, so I could take a directors loan then repay it after April 5th, thus avoiding a £4k tax bill.
Disregarding the ethics of this, does this type of activity raise alarm bills with HMRC?
If I'm following your post correctly...
You can withdraw funds as 'directors loan' and repay within 9 months of Financial year end thus avoiding any tax issues.
If the directors loan remains after that 9 month period then company is liable for S455 tax (which gets refunded if/when the loan is repaid.
You are just shifting the problem in to following tax year so I'm assuming you are planning less income next year or you will be faced with same issue again but starting from a negative as will have needed to repay the directors loan balance.
Dave
You can withdraw funds as 'directors loan' and repay within 9 months of Financial year end thus avoiding any tax issues.
If the directors loan remains after that 9 month period then company is liable for S455 tax (which gets refunded if/when the loan is repaid.
You are just shifting the problem in to following tax year so I'm assuming you are planning less income next year or you will be faced with same issue again but starting from a negative as will have needed to repay the directors loan balance.
Dave
Ah I see.
I see no issues with it from that point of view.
Directors Loans are just that, loans. So ok to use if used properly and not in lieu of salary etc indefinitely.
However, only point to bear in mind would be interest on the loan or you will need to remember come P11D time.
And yes, the Dividend tax shake up won't help things!
I see no issues with it from that point of view.
Directors Loans are just that, loans. So ok to use if used properly and not in lieu of salary etc indefinitely.
However, only point to bear in mind would be interest on the loan or you will need to remember come P11D time.
And yes, the Dividend tax shake up won't help things!
If you consistently borrow from your company but repay before the end of the company's accounting year, HMRC will not see that there ever was a director's loan outstanding as it would not be visible at the balance sheet date
BUT
there are tax rules that are meant to prevent that type of activity.
For a start, the 2006 Companies Act requires that movements on overdrawn director's loan accounts be disclosed in the accounts. Failure to do so is an offence.
Secondly, if the loan exceeds £5,000 at any point, there will be a requirement to declare it as a PAYE Benefit in Kind UNLESS the company charges the director interest at a commercial rate.
Finally, you will see in the News forum a thread about Making Tax Digital. This is definitely coming in for sole trader, partnerships and buy to let landlords on 1 April 2018. This involves submitting quarterly summaries (at least) to HMRC
Two years after that, the plan is that limited companies will also need to do the same. Providing more frequent information to HMRC will reveal such overdrawn loan accounts if they exist during the company's financial year.
BUT
there are tax rules that are meant to prevent that type of activity.
For a start, the 2006 Companies Act requires that movements on overdrawn director's loan accounts be disclosed in the accounts. Failure to do so is an offence.
Secondly, if the loan exceeds £5,000 at any point, there will be a requirement to declare it as a PAYE Benefit in Kind UNLESS the company charges the director interest at a commercial rate.
Finally, you will see in the News forum a thread about Making Tax Digital. This is definitely coming in for sole trader, partnerships and buy to let landlords on 1 April 2018. This involves submitting quarterly summaries (at least) to HMRC
Two years after that, the plan is that limited companies will also need to do the same. Providing more frequent information to HMRC will reveal such overdrawn loan accounts if they exist during the company's financial year.
PurpleMoonlight said:
Eric Mc said:
Secondly, if the loan exceeds £5,000 at any point, there will be a requirement to declare it as a PAYE Benefit in Kind UNLESS the company charges the director interest at a commercial rate.
£10,000January is a long month.
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