Director's loan short-term issued after 6Apr closed in Aug, Accnt year closes in Sep

[Yuri F]

Thinking about taking short-term loan from my Ltd (sole director/shareholder).
New tax year already started (6th-Apr-2020)
Ltd Accounting year ends in September (2020).
Say basic amount for reference - £10K, repayable in August with annual interest equivalent of 5%.

Therefore 4 months, within single "personal tax year" and single "company accounting year"

So 4 very simple questions:

1) What are tax implications for Ltd?
2) What are tax implications for Me?
3) What are reporting requirements for Ltd?
4) What are reporting requirements for Me?

Thank you.

[TheCyclingProgrammer]

Director loan balances up to £10k can be interest free without incurring a BIK charge. But if you want to charge yourself interest anyway.

1. None, but interest charged is taxable income for the company.
2. None.
3. None apart from recording the interest as income.
4. None.

The biggest implication for your company is if you do not repay the loan as planned and it remains unpaid 9 months after the end of your company financial year.

[Yuri F]

Wow, thank you TheCyclingProgrammer, that's fantastic news, will arrange transfer tomorrow then.
with all this VAT (and some other, incl. personal IT/CGT via SA) taxes deferral by HMRC
was thinking where to park unexpected excess reserve to make sure it doesn't just sit there doing nothing,

coincidentally my ISA is not topped up yet (and luckily markets are at rock-bottom atm)
don't want to sell from my main share-dealing account
therefore this loan might be a good tool to fill the gap meanwhile..


As for interest rate - just formal to be safe with something minimally above HMRC's official rate.

[northernladuk]

We've done directors loans to death on here. Try the Google search method to search for old posts. We've discussed implications and gotchas endlessly.

Directors loan site:contractoruk.com/forums

Watch for bed and breakfasting, try not to put it somewhere it's tied in, don't go one penny over 10k and bear in mind it's a useful tool to defer tax over end of periods, which you can't if you've already used it for something else.

And use with caution is the general accountants advice. Plenty of examples of it going wrong on here and costing a hell of a lot more than it made through investing.

[Lance]

For the very minimal growth benefit is it worth it?
Or for more growth there’s a risk of losing the ‘extra’ money.

Personally I think you’re crazy investing creditors money in anything other than a savings account. You’ll make at best 1% p.a. but not even for a year. Anything more ambitious risks losing some of it. Investments are for long term, not, repeat, not short term especially during periods of volatility.
And if you have cash reserves to cover this if it doesn’t work out then invest that.


Al you’re doing is adding risk for pretty much zero gain...

[wattaj]

Good grief. Leave the money to pay your tax liabilities where they are in the company's accounts. Play with any retained profits of you must screw around like this. Google "Beneficial Loans" and the impact of S455 if you cannot repay any loans that you do take.

[Old Greg]

For the very minimal growth benefit is it worth it?
Or for more growth there’s a risk of losing the ‘extra’ money.

Personally I think you’re crazy investing creditors money in anything other than a savings account. You’ll make at best 1% p.a. but not even for a year. Anything more ambitious risks losing some of it. Investments are for long term, not, repeat, not short term especially during periods of volatility.
And if you have cash reserves to cover this if it doesn’t work out then invest that.


Al you’re doing is adding risk for pretty much zero gain...

But Yuri says shares are at rock bottom!

[WordIsBond]

Thinking about taking short-term loan from my Ltd (sole director/shareholder).
New tax year already started (6th-Apr-2020)
Ltd Accounting year ends in September (2020).
Say basic amount for reference - £10K, repayable in August with annual interest equivalent of 5%.

Therefore 4 months, within single "personal tax year" and single "company accounting year"

So 4 very simple questions:

1) What are tax implications for Ltd?
2) What are tax implications for Me?
3) What are reporting requirements for Ltd?
4) What are reporting requirements for Me?

Thank you.

1. If you go over £10K, you end up with reporting, etc. Don't do it no matter what.

If you accidentally charge something to the company that's actually personal, then that might get booked as a DL. If you already did £10K, then you are over the £10K. So don't do £10K, do £9.5K or less to leave yourself an 'oops' buffer. I've used DL once, but only did £8K.

2. Do not take money needed for taxes out of the company, even as a DL. If you do, and something goes wrong, they will come after you personally. Just don't do it. If you are talking about other reserves in the company, and you want to do this, that's fine, but don't do it with taxes.

3. I agree that the market looks like the best buying opportunity I've seen since 1987, maybe even better than that. But there's a significant short term and maybe even medium term risk that it could go even lower. Built into the market is an assumption that lockdowns are going to significantly ease and economies are going to at least start rolling again by mid to late summer. If eased lockdowns bring the virus roaring back and we get renewed lockdowns, shares will fall further. Don't put anything into shares that you may need anytime in the next 6-12 months. You might make a quick profit but you might get destroyed. You certainly DON'T want to do that with money you'll need for taxes.

[Yuri F]

Thanks guys for warnings and pointers/hints, we (Ltd) do have other convertible assets (not only hypothetical AR, one of exmpl.: today is expected arrival of another 5K for short project, so fingers crossed for client to be still solvent.. knowing broad business environment..), so it's relatively safe from tax liability perspective (AP).

Same on private/personal account and risks involved with share-dealing/market - there's plenty of other diversified resources to solve/deal with worst-case scenario if everything goes limbo (as very likely many here - I've dealt with range of desperate crisis situations in my life, incl financial area, so emotionally don't give a s%^& anymore for any outcome, only pure reasonable calculated actions)..

Exercise is purely to put excess resources for a better/rational use (not only to benefit commercial bank shareholders to meet their reserve requirements for cheap/without any benefit for my Ltd)

My mandatory legal duty as director to ensure max (risk-adjusted) profits (interest in bank on current account is next to nothing), 4-5% seems a very good opportunity for risk-free (in this case) investment via lending and there's plenty of safe space to avoid delays (5-8 days return wire from share account after trade to bank + double just in case)

Went though GL - everything seems solid on other spending categories which could be exposed/targeted as DL, but just to play safe - will reduce loan down to £9K

As for returns - one of my major tickers scored +25% today after impressive RNS, (loan hasn't yet reached my acc unf., regular share acc. portfolio weight 20%, not tax-free ISA unfortunately where I've already delayed top-up for too long - so missed opportunity here), average perf: +4% in one day (avg +18% in month, luckily mostly dodged market drop absorption because was in cash for 70% of portfolio at that moment/2-weeks).. so win-win (cheap loan for high gain on personal side, vs better profits for Ltd).

[Lance]

Thanks guys for warnings and pointers/hints, we (Ltd) do have other convertible assets (not only hypothetical AR, one of exmpl.: today is expected arrival of another 5K for short project, so fingers crossed for client to be still solvent.. knowing broad business environment..), so it's relatively safe from tax liability perspective (AP).

Same on private/personal account and risks involved with share-dealing/market - there's plenty of other diversified resources to solve/deal with worst-case scenario if everything goes limbo (as very likely many here - I've dealt with range of desperate crisis situations in my life, incl financial area, so emotionally don't give a s%^& anymore for any outcome, only pure reasonable calculated actions)..

Exercise is purely to put excess resources for a better/rational use (not only to benefit commercial bank shareholders to meet their reserve requirements for cheap/without any benefit for my Ltd)

My mandatory legal duty as director to ensure max (risk-adjusted) profits (interest in bank on current account is next to nothing), 4-5% seems a very good opportunity for risk-free (in this case) investment via lending and there's plenty of safe space to avoid delays (5-8 days return wire from share account after trade to bank + double just in case)

Went though GL - everything seems solid on other spending categories which could be exposed/targeted as DL, but just to play safe - will reduce loan down to £9K

As for returns - one of my major tickers scored +25% today after impressive RNS, (loan hasn't yet reached my acc unf., regular share acc. portfolio weight 20%, not tax-free ISA unfortunately where I've already delayed top-up for too long - so missed opportunity here), average perf: +4% in one day (avg +18% in month, luckily mostly dodged market drop absorption because was in cash for 70% of portfolio at that moment/2-weeks).. so win-win (cheap loan for high gain on personal side, vs better profits for Ltd).

well if you're comfortable then go for it.


I'll ask one more question though.... If you really want to maximise investment opportunities, and you feel you have a very good grasp of the risks, then why don't you invest by using leveraged trading?
You'll get way more extra oomph than a measly £9k.