Question for the accountants
Discussion
drivin_me_nuts said:
Eric,
the account is in the name of the limited company.
The moment you take money out of the limited company bank account and transfer it to a personal bank account you have made a withdrawl from the company and you could lay yourself open to tax and NI charges and, even worse, Section 419 penalty tax charges and interest and penalties. You have, in effect, created an overdrawn Director's Loan Account with the company.the account is in the name of the limited company.
However, these problems can be avoided if you are careful.
If you put the money back in full before the end of the accounting year or tax year, you will not have any problems
If you keep the money but treat it as salary and the company pays the relevant PAYE tax and NI on the amount, you will not have any problems either.
You could clear the "debt" you owe to the company by declaring a dividend for the same amount. This is not always possible as a company may not be in a position to pay dividends because of insufficent reserves or objections by other directors.
If the debt remains outstanding at the end of the accounting year or the end of the tax year the company could find itself liable to a Section 419 tax charge equating to 20% of the debt balance.
There could also be a PAYE Benefit in Kind charge based on low (or no) interest charged to the director for the loan. This loan and benefit would need to be declared on a Form P11d and, if not, could open the company to P11d based penalties.
Remster500 said:
Eric,
I thought Directors could only borrow a max £5k, which as you say, must be paid back in full within the year.
"If you put the money back in full before the end of the accounting year or tax year, you will not have any problems"
There are two considerations you need to be aware of when dealing with Director's Loans and the Revenue (and Company Law).I thought Directors could only borrow a max £5k, which as you say, must be paid back in full within the year.
"If you put the money back in full before the end of the accounting year or tax year, you will not have any problems"
The £5,000 limit relates to the PAYE Benefit in Kind limits.
For Corporation Tax and Company Law purposes, overdrawn loan accounts are basically illegal. If they exist, they must be hhighlighted in the notes to the accounts outlining
i) how much was outstanding on the loan
ii) who the loan was to
iii) the maximum amount outstanding during the year
iv) the terms and conditions of the loan
v) whether the loan was repaid after the balance sheet date
If a loan was outstanding at the balance sheet date, the Revenue will levy an additional 20% Corporation tax charge based on 20% of the valaue of the loan at the financial year end (Section 419).
Some of these rules are being changed as the 2006 Companies Act is being introduced but the act is being brought in over a three year period and it is not certain when these changes will be become law.
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