Loan v Divs

[JRCT]

I've taken a company loan of £10k and I've gone about £1.5k into the higher tax bracket this financial year.

Plenty of cash in the Ltd account, but I'm just trying to work out which incurs the least tax. Taking my Directors loan to -£11.5k and paying BIK or declaring £1.5k divs at c25%.

Any other implications of having my dir loan at that level for a short period and over the financial year end?

[Kenny@MyAccountantFriend]

As the loan is over 10k you can either pay a BIK on it or pay interest tot he company at a rate of 3.25%. As the interest is paid to your own company I would recommend this option.

As such the loan would save more in tax depending on your intentions for dividends next year.

[TheCyclingProgrammer]

In the short term it will clearly cost you more in tax to take the higher rate dividend. But longer term, the director's loan has got to be repaid so unless you can do so using dividends within the basic rate and still have enough money to live on, you're probably only delaying taking a higher rate dividend until some point in the future. And by that point, you'd have both paid higher rate tax on the dividend used to pay off the loan AND an amount of interest or BIK tax on the additional loan.

No other implications loan-wise assuming you plan to repay within 9 months of the end of your company financial year but as I said, unless you can re-pay it without taking a higher rate dividend in the future, I'd not bother delaying the inevitable and just take the higher tax rate hit now.

[JRCT]

In the short term it will clearly cost you more in tax to take the higher rate dividend. But longer term, the director's loan has got to be repaid so unless you can do so using dividends within the basic rate and still have enough money to live on, you're probably only delaying taking a higher rate dividend until some point in the future. And by that point, you'd have both paid higher rate tax on the dividend used to pay off the loan AND an amount of interest or BIK tax on the additional loan.

No other implications loan-wise assuming you plan to repay within 9 months of the end of your company financial year but as I said, unless you can re-pay it without taking a higher rate dividend in the future, I'd not bother delaying the inevitable and just take the higher tax rate hit now.

That is a fair point. I was planning to pay it off next month.

[Maslins]

Unless you're confident you'll be drawing out much less next tax year, my view is forget the calculation and take the dividend (and personal tax hit) now.

EDIT - what TheCyclingProgrammer said

[Andrew@Wisteria]

That is a fair point. I was planning to pay it off next month.

In which case, a director's loan seems the sensible option.