Directors Loan query

**northernladuk** · 27 February 2017, 13:28

You have an accountant right?

You are getting in to a fairly complex area and your particular circumstances might also play a factor so you really should talk this through with your accountant to make sure everything is covered and you find out what you don't know. The fact you want to take it monthly which makes it look more like income that a loan makes me think something is wrong beyond the DL as well.

IMO my feeling is you shouldn't be buggering around with DL's unless you are absolutely sure what you are doing. If you need it to correct errors at year end and you've maxed it out it's going to cost you money.

**Louisa@AardvarkAccounting** · 27 February 2017, 14:06

Keeping things simple and not knowing all the details:

1 - If you have taken the loan and repaid this within an hour - no implications. Providing your total DLA was below £10,000 anyway then no BIK would apply.

2 - The £10,000 threshold applies to an individual director, not collectively all of the directors in one company.

3 - Providing the loan account does not go above £10,000 at any point in the tax year, no BIK applies. However you need to remember that if you were to overpay your wages or expenses at any time, this could be deemed as a loan so might push you over the limits.

Then you need to also make sure any loans are repaid within 9 months of the company year end to avoid s455 charges.

I wouldn't advise taking loans and repaying them all the time, especially at the company year end to avoid s455 charges as HMRC could see this as 'bed and breakfasting'.

**TheCyclingProgrammer** · 27 February 2017, 15:18

Louisa answered pretty much everything though this:

does the 30 day rule apply to the account or per director

Is potentially an interesting question. I'm assuming you're talking about the 30 day bed and breakfasting rule (which applies to loans up to £15k) where so long as there is a 30 day gap between repaying a loan and taking a new one, HMRC will not consider it a continuation of the previous loan for the purposes of s455.

My initial thought would be that this would apply on a per loan account basis - remember you don't have to be a director to have a company loan, a shareholder can too (they are technically known as "loans to participators" which includes shareholders and company officers).

However as this opens up the potential for abusing the B&B rules (e.g. before the 9 months deadline you simply shift one director's loan to to another one) I would suspect that HMRC would still be able to challenge this arrangement as bed and breakfasting. So if that's what you had in mind, tread carefully.

Also remember that if the loan is above £15k then the 30 day rule doesn't apply - HMRC can treat any new loan as a continuation of a previous one if they suspect that's what you are doing.

**FMCG** · 27 February 2017, 15:47

May I ask..........

If 1x Director (55% shareholding) with additional 3x shareholders (each with 15%) (technically known as "loans to participators" - thanks to TheCyclingProgrammer), would they each be able to borrow upto £9,500/each ie totaling £38K.

Intention to repay within 9 months of year end and not re-borrow.

**TheCyclingProgrammer** · 27 February 2017, 16:35

Originally posted by northernladuk

The clue is in the title DIRECTORS loan....

Loans to participators (which is what a director's loan is) can include loans to shareholders.

AFAIK the rules regarding BIKs only apply to company officers or employees (a BIK charge can't apply to somebody who isn't an employee/officer) although if the shareholder is also a relative of a director then I believe a BIK charge can still be made on the director for any interest free loans in excess of £10k. I'm not sure what the situation is if the recipient shareholders are friends but otherwise unconnected to the director.

The s455 tax charge and bed and breakfasting rules apply to any outstanding loans to participators.

So to answer OP's question, yes, the director and each shareholder can potentially borrow up to £10k without there being any BIK issues and so long as all outstanding loans are repaid within 9 months of the company year end there are no s455 tax implications either.

Whether or not this is a good idea depends entirely on why OP wants to do this, who the loans are for, what they are for, the likelihood of them actually being paid back in time and of course the company's cashflow to have these loans sitting on their books.

**northernladuk** · 27 February 2017, 16:36

Originally posted by FMCG View Post

May I ask..........

If 1x Director (55% shareholding) with additional 3x shareholders (each with 15%) (technically known as "loans to participators" - thanks to TheCyclingProgrammer), would they each be able to borrow upto £9,500/each ie totaling £38K.

Intention to repay within 9 months of year end and not re-borrow.

3 Shareholders? That you are willing to lend 10k to without paperwork? Must be friends or family which is an issue.

What are they going to do with the money? Are you going to pool it to invest which would indicate funds all going to you which is another massive problem?

I think you need to look at your situation in much more detail than just a simple question like that IMO. The answer might be legally correct but the reality could open up a world of problems if you push it too far.

EDIT : Oh dear, your kids...... You didn't did you?

http://forums.contractoruk.com/accou...eholder-s.html

**FMCG** · 27 February 2017, 16:59

Originally posted by northernladuk View Post

EDIT : Oh dear, your kids...... You didn't did you?

http://forums.contractoruk.com/accou...eholder-s.html

I was tempted but did not.

Have crazy ideas - come on here - somebody points out the "stupidity" of my suggestion and I take their advice.

**northernladuk** · 27 February 2017, 17:10

Originally posted by FMCG View Post

I was tempted but did not.

Have crazy ideas - come on here - somebody points out the "stupidity" of my suggestion and I take their advice.

So three shareholders?

**ukltdcon** · 27 February 2017, 17:47

Thanks for the advice, it's the first time I've used directors loans as it can be useful for cash flow for example to optimise dividend tax by waiting till after April to issue another dividend, if your YE falls after this e.g mine in June. However does seem to be a bit of a grey area so will seek advice from an accountant.

Directors Loan query