Directors Loan Replayment

[Geekman]

All,

I have gone thru HMRC websie on this but wasn't 100% sure hence asking here -

I started my limited company in Aug 2013. My Account advises me that my first tax returns will be filed 9 months after the first year end so - May 2015 (Aug 2014 + 9 months). I wanted to double check:
1> If I took a loan during the first year of my company, then do I have to reply it fully by Aug 2014 or can I reply it by May 2015 without paying additional corporate tax on the outstanding loan?

2> If it needs to be paid by Aug 2014 then if I reply it, can I avail another loan say by Sep 2014 and reply it by May 2015?

3> Would taking a director's loan increase chances of HMRC review/investigation into company's finances? Are there any such experiences amongst you? How common is it to avail a director's loan? Is this something perceived "fishy" by HMRC (though I intend to be genuine and reply it with interest?)

4> What's the minimum interest rate acceptable by HMRC on director's loan?

Your responses will help me plan my financials.

Many thanks in advance!

Regards,
Geekman.

[stek]

All,

I have gone thru HMRC websie on this but wasn't 100% sure hence asking here -

I started my limited company in Aug 2013. My Account advises me that my first tax returns will be filed 9 months after the first year end so - May 2015 (Aug 2014 + 9 months). I wanted to double check:
1> If I took a loan during the first year of my company, then do I have to reply it fully by Aug 2014 or can I reply it by May 2015 without paying additional corporate tax on the outstanding loan?

2> If it needs to be paid by Aug 2014 then if I reply it, can I avail another loan say by Sep 2014 and reply it by May 2015?

3> Would taking a director's loan increase chances of HMRC review/investigation into company's finances? Are there any such experiences amongst you? How common is it to avail a director's loan? Is this something perceived "fishy" by HMRC (though I intend to be genuine and reply it with interest?)

4> What's the minimum interest rate acceptable by HMRC on director's loan?

Your responses will help me plan my financials.

Many thanks in advance!

Regards,
Geekman.

Rearrange this sentence.

Your speak Accountant to.

[northernladuk]

Rearrange this sentence.

Your speak Accountant to.

Totally this but...

1> If I took a loan during the first year of my company, then do I have to reply it fully by Aug 2014 or can I reply it by May 2015 without paying additional corporate tax on the outstanding loan?

9 months after year end whatever your company year is.

2> If it needs to be paid by Aug 2014 then if I reply it, can I avail another loan say by Sep 2014 and reply it by May 2015?

Absolutely not. This is called Bed and Breakfasting, something HMRC have just clamped down on. They will tax it as they will assume you had no intention of paying it back so can't be a loan. Very expensive mistake to make.

3> Would taking a director's loan increase chances of HMRC review/investigation into company's finances? Are there any such experiences amongst you? How common is it to avail a director's loan? Is this something perceived "fishy" by HMRC (though I intend to be genuine and reply it with interest?)

Technically not except for the bed and breakfast. What is more likely to happen though is you **** up, can't pay it back and paint a big red target on your forehead. There is a thread on here about this right now.

4> What's the minimum interest rate acceptable by HMRC on director's loan?

4% if it's over 5k isn't it?

First question. Where on earth is the money coming from to loan yourself? You can only loan if from profits. You should not loan yourself your Corp Tax and VAT money ever! You have had your company 4 months now? Where is the money to loan yourself?

First job for you is to build up your war chest which can't be a lot in the first year. It's there to cover your ass if you get binned or can't find a contract. One of those two is highly likely to happen in the next 12 months so it is essential to keep it in the company safe and sound. Anything above that might be worth loaning out. You loan the money, get binned, nothing coming in to pay yourself divis to cover the loan, goes over the period, get taxed on that, fined for not paying CT yadda yadda.

Your company is not there for you to fudge, particularly in your first year. Avoid this if at all possible.

PS. Learn you to use the search function as detailed in the FAQ section. Everything you ever wanted to know about loans, including many warning posts, will be found using it.

[Greg@CapitalCity]

Hi Geekman,

Thanks for the message. Here are some answers for you;
(1) May 2015 is correct;
(2) It does not need to be repaid by Aug 2014 so its a moot point;
(3) No, not really;
(4) 4% is correct, payable back to your company to avoid a P11D benefit in kind charge, if the loan balance exceeds £5k. Speak to your accountant about this calculation - the HMRC have a bunch of rules regarding it;

Thanks, Greg

[Martin at NixonWilliams]

You can only loan if from profits. You should not loan yourself your Corp Tax and VAT money ever!

Whilst it is possible to loan money set aside for taxes, I completely agree with northernlad, don't do it!

I have seen this many times and it can get very messy. If you can't repay the money you would be required to meet your company's tax liabilities personally. Once the deadlines have passed interest and penalties will build up, followed by threatening letters from HMRC.

Avoid this at all costs.

(2) It does need to be repaid by Aug 2014 so its a moot point;

To avoid any confusion - I think Greg means to say that it does not need to be repaid by August 2014, as you are allowed a further 9 months.

[Sausage Surprise]

Personally I'd just repay it rather than strike up a dialogue.

[Greg@CapitalCity]

To avoid any confusion - I think Greg means to say that it does not need to be repaid by August 2014, as you are allowed a further 9 months.

Arrgh. Yep, thanks for that. Original post now amended.