Overdrawn Directors Loan Account - MVL - Options Overdrawn Directors Loan Account - MVL - Options
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  1. #1

    Nervous Newbie


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    Default Overdrawn Directors Loan Account - MVL - Options

    Hi,

    I have a Overdrawn Directors Loan account for roughly £60,000. Its been overdrawn for few years now and I have also paid the s445 tax to HMRC when the loan was taken out.
    There is a healthy balance upwards of £200,000 profits available in the company.
    I would like to close down the company via MVL route and take the money out but don't have access to £60k personally to close the loan first (unless I take dividend on high tax bracket). I am doing an inside IR35 contract currently and planning to switch to permanent role.
    What are my options of doing an MVL without actually borrowing money to close the loan first? In lieu settlement options and are there specialists to deal with such situations?

    Once I get the money I plan to invest in BLT via a SPV. Another option is to switch current company to SPV there by losing the MVL option and potentially leaving the SPV open to any IR35 enquiry for past contracting.

    My accountant has given me one option of settling the directors loan first before using their services for MVL.

    Please throw some options if you have seen and heard it all before....

  2. #2

    Prof Cunning @ Oxford Uni

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    Quote Originally Posted by Anagram View Post
    Hi,

    I have a Overdrawn Directors Loan account for roughly £60,000. Its been overdrawn for few years now and I have also paid the s445 tax to HMRC when the loan was taken out.
    There is a healthy balance upwards of £200,000 profits available in the company.
    I would like to close down the company via MVL route and take the money out but don't have access to £60k personally to close the loan first (unless I take dividend on high tax bracket). I am doing an inside IR35 contract currently and planning to switch to permanent role.
    What are my options of doing an MVL without actually borrowing money to close the loan first? In lieu settlement options and are there specialists to deal with such situations?

    Once I get the money I plan to invest in BLT via a SPV. Another option is to switch current company to SPV there by losing the MVL option and potentially leaving the SPV open to any IR35 enquiry for past contracting.

    My accountant has given me one option of settling the directors loan first before using their services for MVL.

    Please throw some options if you have seen and heard it all before....
    1. Settle the director’s loan.
    2. Close the company, paying any taxes/charges/fees due.
    3. Receive the remaining funds from the company
    4. Repay any money you had to borrow to settle the loan.
    5. Consider how to invest what is left.

    If you’re hoping for a way to have £200k tax free, and the loan written off, you might be in for a shock.
    You’ll be in for a bigger shock if you don’t repay the loan, as you could be liable for the loan charge and settlement.
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  3. #3

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    Quote Originally Posted by WTFH View Post
    If you’re hoping for a way to have £200k tax free, and the loan written off, you might be in for a shock.
    You’ll be in for a bigger shock if you don’t repay the loan, as you could be liable for the loan charge and settlement.
    I wasn't hoping for loan to be written off. I was checking if there was a way to settle the loan amount from the final disbursement amount in advance.
    I guess the option does not exist then.

  4. #4

    bored now

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    Quote Originally Posted by Anagram View Post
    I wasn't hoping for loan to be written off. I was checking if there was a way to settle the loan amount from the final disbursement amount in advance.
    I guess the option does not exist then.
    Well you could call up a few MVL operators and see what they say.

    However you can really only MVL a company with no outstanding debts and credits debts So I think you need to find a way to repay the loan before MVLing the company.
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  5. #5

    Godlike

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    This is a bit of a first world problem really.

    At some point all the extra cost and hassle of whatever wheeze you thought was saving you tax, is going to cost more than you saved.

    If you can’t borrow £60k for a few months to repay the loan then just use dividend. Simple.

    If you can’t borrow £60k for a few months even though you have £140k surplus in your CO then perhaps your personal finances need more attention before you embark on another wheeze.

    And read the other threads about using SPVs. You might be better off doing it more simply as personal finance. Or paying off some of your own mortgage so that if you do need £60k for a rainy day you can get it with a phone call.
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  6. #6

    Contractor Among Contractors


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    It would be nice if you could "repay" the £60K on paper only, knowing you'll get more than that back via the cash disbursement a few months later, and could settle things up then, but you'd need to contact MVL companies to see if that option is available to you.

    It sounds obvious, but worth saying anyway: any close friends/family who'd be willing to lend you the £60K for a few months in exchange for a few pints?

    Remortgage any properties to release funds?

    How's your credit rating/credit cards? Any 0% cards available that you could use, and mix those funds with either of the above?
    Last edited by Paralytic; 21st October 2020 at 08:52.

  7. #7

    Contractor Among Contractors


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    I've I've understood correctly, your balance sheet will look sort of like the below:

    £200k cash at bank
    £60k overdrawn DLA
    £20k S.455 tax
    ------
    £280k total assets

    (for this purpose I'll assume no liabilities)

    £280k shareholder funds.

    No reason why you can't do an MVL in that position. Be aware you likely won't qualify for the lowest priced offerings (eg our sister company MVL Online wouldn't take on your case unless you'd clear the DLA and reclaim the S.455 first). In your situation if left as is, the liquidator would:
    - do a "paper only" distribution to clear the director loan,
    - chase HMRC to get the S.455 back (this is one thing that makes it a pain, as typically HMRC won't even consider refunding the S.455 until 9 months after the loan is repaid)
    - do cash distributions as well, totalling £220k to include both the existing cash balance and the ~£20k S.455 you hope to get back.
    You'd then suffer personal tax on the basis of having received £280k distributions.

  8. #8

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    Quote Originally Posted by Maslins View Post
    I've I've understood correctly, your balance sheet will look sort of like the below:

    £200k cash at bank
    £60k overdrawn DLA
    £20k S.455 tax
    ------
    £280k total assets

    (for this purpose I'll assume no liabilities)

    £280k shareholder funds.

    No reason why you can't do an MVL in that position. Be aware you likely won't qualify for the lowest priced offerings (eg our sister company MVL Online wouldn't take on your case unless you'd clear the DLA and reclaim the S.455 first). In your situation if left as is, the liquidator would:
    - do a "paper only" distribution to clear the director loan,
    - chase HMRC to get the S.455 back (this is one thing that makes it a pain, as typically HMRC won't even consider refunding the S.455 until 9 months after the loan is repaid)
    - do cash distributions as well, totalling £220k to include both the existing cash balance and the ~£20k S.455 you hope to get back.
    You'd then suffer personal tax on the basis of having received £280k distributions.
    Thank you Maslin. All your assumptions are correct and "paper only distribution" was the option I wanted check if exists.
    Pardon my accounting/tax/legal knowledge but I did not understand the "suffer personal tax" bit. I am under the assumption that I will pay 10% tax on the £280k distribution. What am I missing?

  9. #9

    Contractor Among Contractors


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    Quote Originally Posted by Anagram View Post
    Pardon my accounting/tax/legal knowledge but I did not understand the "suffer personal tax" bit. I am under the assumption that I will pay 10% tax on the £280k distribution. What am I missing?
    I don't think you're missing anything, that's what I meant. I guess I was just stressing you'll be taxed on £280k worth of distributions, even though you'll only get cash of £220k from the liquidation. The difference being the director loan which you'd taken prior to the liquidation.

  10. #10

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    Maslins is quite right. The overdrawn DLA can be distributed by the liquidator without the liquidator having to first call in the cash. This is also known as 'distribution in specie'. It's normally very easy for the liquidator to arrange.

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