Rolling director's loan with 31 day breaks in between

[Tinfed]

Hi all,

Bed and breakfasting rules prevent one from paying down a directors loan and taking out another loan within 30 days (~a month).

If it was possible to obtain bridging finance from elsewhere (family or bank) for 1 month each year, would it still be tax efficient to have a rolling directors loan for 11 months out of the year? Are there any pitfalls that might make this an unattractive option?

My goal here is to make use of retained cash within the business without distributing dividends or breaking the law.

Any guidance much appreciated

[malvolio]

Ever heard of Ramsay? Look it up, when joined with Principle... Then look at the legal background as to why many EBTs don't work any more.

If you use money for your benefit, no matter where it comes from, it is treated as taxable income. Evolving complicated ways to evade tax does none of us any good, least of all you. Pay the taxes you owe like everyone else.

HTH. BIDI

[northernladuk]

Is the 10k really worth all the risk of it being classed as income by pushing the rules? You are going to have to find something with belting rates to make enough decent dosh from 10k to bother doing all this.

If you do find something why not just invest through the company instead? Pay a bit more tax on the profit but again, on the extra 10k it's not going to be much.

[TheCyclingProgrammer]

Is the 10k really worth all the risk of it being classed as income by pushing the rules?

You're not limited to £10k though, if your business has enough cash and you pay the appropriate amount of interest. You can take up to £15k and still be within the scope of the 30 day bed and breakfasting rule (any more than this and the 30 day rule is superseded by a much broader rule that allows HMRC to treat any further loan as a continuation of the previous without any time limit).

There's also no risk of the loan being taxed as income AFAIK - a loan is a loan. This is more about dodging s455 tax. And the rules are reasonably clear on that front.

OP - what are you trying to achieve? Are you simply trying to avoid paying the s455 charge on an unpaid loan? Because that's all this arrangement does. Ultimately the loan will have to be repaid at some point.

[simondolan]

Hi all,

Bed and breakfasting rules prevent one from paying down a directors loan and taking out another loan within 30 days (~a month).

If it was possible to obtain bridging finance from elsewhere (family or bank) for 1 month each year, would it still be tax efficient to have a rolling directors loan for 11 months out of the year? Are there any pitfalls that might make this an unattractive option?

My goal here is to make use of retained cash within the business without distributing dividends or breaking the law.

Any guidance much appreciated

If you do the maths you'll probably find it makes little to no difference. Any difference it did make would be wiped out and a bit more defending it if it came to it.

[TheCyclingProgrammer]

If you use money for your benefit, no matter where it comes from, it is treated as taxable income

Er...no. It's a director's loan. What you use the money on is irrelevant. A loan is a loan.

[northernladuk]

You're not limited to £10k though, .

Indeed but I had assumed the OP was aware of DLs so the lack of S455 information led me to assume he was staying under the threshold.

You are probably technically right TCP but both accountants I've had have told me not to use this as a rolling tool for investing.

Also I've used the DL a few times at year end and to clean my accounts up when my first one messed up so saved me tax. If I'd maxed out the DL if have probably ended up paying more tax than an investment could have returned.

[TheCyclingProgrammer]

Don't get me wrong, trying to do this as as a way of increasing your income is ultimately pointless...however it can be an effective way to get a cheap loan that you pay off over a longer period of time. It still sounds like a lot of hassle though (bridging loans etc.) - if your cashflow can take the hit, simply pay the S455 tax (you'll get it back incrementally as you pay off the loan each year).

[northernladuk]

It appears the OP is considering using it to invest it bitcoin. What could go wrong?

[BrilloPad]

Brilliant idea.

Wrap it up in a scheme. SAy it is QC approved.

What could go wrong?