Selling debt to the company

[ndoody]

I've searched on this question, but couldn't find a thread that matched my thinking.

There is a fair amount of money accrued in my company bank account, and I don't take it so I can spread out the tax obligation - as you do. But what I was thinking was that I could sell on my debts to the company, and repay this debt + interest.

The end goal is to transfer my debt and pay a lower APR to the company, meaning I save on all the interest. The company would make profit on the debt, as I would like to repay everything + interest as if it were acting as a loan company. The profit would all be mine in the end, so that's fine.

I know there is a directors loan available to me, as the director, but this is normally talking about interest free and has to be repaid quite quickly.

[Batcher]

Wouldn't you have to set up as a financial /debt collection company and be FSA registered?

[northernladuk]

Selling a debt to a company to gain a tax advantage sounds like aggressive tax avoidance to me. You can get a commercial loan from your company though, not just a directors loan but comes with all sorts of rules and caveats.

Best person to speak to is your accountant.

[BolshieBastard]

I've searched on this question, but couldn't find a thread that matched my thinking.

There is a fair amount of money accrued in my company bank account, and I don't take it so I can spread out the tax obligation - as you do. But what I was thinking was that I could sell on my debts to the company, and repay this debt + interest.

The end goal is to transfer my debt and pay a lower APR to the company, meaning I save on all the interest. The company would make profit on the debt, as I would like to repay everything + interest as if it were acting as a loan company. The profit would all be mine in the end, so that's fine.

I know there is a directors loan available to me, as the director, but this is normally talking about interest free and has to be repaid quite quickly.

LOL!

Yes, go straight ahead. And open a personal bank account like you have suggested in your other post.

Then, sit back and wait for HMRC to come knocking at the door. Of course you wont know when that knock comes, could be 2 years, 7 years, 10 years or more which you might think you will be cool with if it is 10 years.

But, you'll be forever looking over your shoulder expecting it. Good luck!

[Jessica@WhiteFieldTax]

It would become a straight forward directors loan, with s455 and BIK, no matter how it's dressed up.

[TheFaQQer]

I know there is a directors loan available to me, as the director, but this is normally talking about interest free and has to be repaid quite quickly.

No it isn't, and no it doesn't.

[TheCyclingProgrammer]

As others have pointed out, what you essentially want to do is consolidate your debts into one low-interest loan and you can do that by taking a director's loan and repaying that over a fixed duration, either interest free (and paying the BIK rates if its over £10k) or at HMRC's specified interest rate (3.25% currently I think).

The biggest caveat is the s455 tax so timing is important if you want to give yourself the longest possible amount of time to repay the loan - if you take it at the beginning of your new financial year you'll have 21 months to repay it to avoid a CT surcharge. If you need longer, you'll need to have the cashflow to pay the s455 tax and wait until you can get it back again once you've repaid the loan.

There's nothing essentially wrong with what you want to do but you can't avoid the BIK and s455 issues of a director's loan no matter how you try and dress it up, as Jessica says. But you need to be fully aware of the implications of a director's loan, especially one over £10k. Even at HMRCs specified interest rate, once accounting for the fact that the interest would be taxable profit for YourCo you'd be paying a much lower rate overall. But you need to speak to your accountant.

I'm not sure NLUK is right about being able to take a "commercial loan" from YourCo (i.e. one that is free from s455 implications) - you're a director so any loan will be treated as such I think.

[ndoody]

As others have pointed out, what you essentially want to do is consolidate your debts into one low-interest loan and you can do that by taking a director's loan and repaying that over a fixed duration, either interest free (and paying the BIK rates if its over £10k) or at HMRC's specified interest rate (3.25% currently I think).

The biggest caveat is the s455 tax so timing is important if you want to give yourself the longest possible amount of time to repay the loan - if you take it at the beginning of your new financial year you'll have 21 months to repay it to avoid a CT surcharge. If you need longer, you'll need to have the cashflow to pay the s455 tax and wait until you can get it back again once you've repaid the loan.

There's nothing essentially wrong with what you want to do but you can't avoid the BIK and s455 issues of a director's loan no matter how you try and dress it up, as Jessica says. But you need to be fully aware of the implications of a director's loan, especially one over £10k. Even at HMRCs specified interest rate, once accounting for the fact that the interest would be taxable profit for YourCo you'd be paying a much lower rate overall. But you need to speak to your accountant.

I'm not sure NLUK is right about being able to take a "commercial loan" from YourCo (i.e. one that is free from s455 implications) - you're a director so any loan will be treated as such I think.

Ahh, finally an answer worth reading...faith in humanity restored, thanks very much

It's actually been a lot of help this answer, I guess I had this idea drummed in me that directors loans were small amounts and had to be repaid to avoid getting nailed for personal tax. I had no idea what s455 tax is, but it gave me a hint to look it up and this article helped me a lot :-

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

It made things click in what you were saying to me, oddly just a directors loan article on the hmrc website of all places.

So, I think, the best way for me to do this would be to take a big loan and calculate a fixed term/monthly rate on the total amount and 3.5% APR over the full term. Now if this term was 5 years, then fine...I will pay the CT @25% year on year for 5 years, then on the 6th year I just get all that back. Then there is no BIK to pay further?

There is enough funds to cover the loan + x years of 25% CT. I'm more than happy to pay the interest on the loan, because the interest will be paid into my company and in the long run I will be the beneficiary of this paid interest as opposed to the bank who I currently have personal loans with.

[ASB]

How does this spread out the tax obligation. That seemed to be your primary objective.
l

[northernladuk]

I'm not sure NLUK is right about being able to take a "commercial loan" from YourCo (i.e. one that is free from s455 implications) - you're a director so any loan will be treated as such I think.

Bad wording on my part. I meant taking a larger loan and paying the interest rather than staying under the 10k limit and 9 month after year end payback option.