Director loan account query

**Craig@Clarity** · 5 January 2012, 10:08

The loan of £20k will not be treated as personal income. It won't show as an outstanding loan either in the company accounts if you pay it back before the year end.

However, since the amount is over £5k, there will be BIK issues. The company will need to pay class 1A NIC and you will need to pay personal tax on this loan. If you pay the company interest of 4% pro rata, this removes any BIK issues.

The loan will need to be declared on your company P11D after the end of the tax year too.

On another point, it looks like you're a higher rate tax payer based on the salary and dividends you have received already, so make sure you're aware how much you need to put aside to pay to HMRC by 31 January 2013.

Hope this helps.

**Nixon Williams** · 5 January 2012, 10:41

Agree with Craig's advice.

Although you have stated that you have no need for the money be wary of withdrawing it again as a loan as this could be seen as 'bed & breakfasting'.

This is a term used by HMRC to classify a series of loans as
one single loan for P11d and section 455 purposes. Basically
speaking, if you take out a loan, repay it on 30th November
(for example) to avoid the section 455 charge then take out
a new loan for the same amount on 1st December, HMRC
would deem there to have been no repayment and as such
the section 455 tax would be due.

If you wish to take a new loan out shortly after repaying one
you should ensure it is for a different amount, a different
purpose and leave as big a gap as possible between the
loans.

This bed and breakfasting is again (we also advise against taking out a loan) something we
would advise against.

Alan

**northernladuk** · 5 January 2012, 10:54

Not knowing your previous situation and state of your financial affairs but.... This 20k was pure profit and not money owed to the VAT man or for CT? If it wasn't there is also a legal issue around you loaning yourself money that isn't yours.

Why did you need it urgently and then have it lying around in your bank? Can't have been that urgent.

**Nixon Williams** · 5 January 2012, 11:16

Originally posted by northernladuk View Post

Not knowing your previous situation and state of your financial affairs but.... This 20k was pure profit and not money owed to the VAT man or for CT? If it wasn't there is also a legal issue around you loaning yourself money that isn't yours.

Why did you need it urgently and then have it lying around in your bank? Can't have been that urgent.

A a loan is only allowed under the Companies Act 2006,
if there is prior shareholder approval although there is an exemption if the loan(s) does not exceed £10,000.

This £10,000 amount should not be confused with the £5,000 limit relating to the taxation of a directors loan.

Sadly, this is yet another area where different figures are used for very similar purposes, it seems purely to confuse the general public!

**northernladuk** · 5 January 2012, 11:57

Originally posted by Nixon Williams View Post

A a loan is only allowed under the Companies Act 2006,
if there is prior shareholder approval although there is an exemption if the loan(s) does not exceed £10,000.

This £10,000 amount should not be confused with the £5,000 limit relating to the taxation of a directors loan.

Sadly, this is yet another area where different figures are used for very similar purposes, it seems purely to confuse the general public!

You quoted my statement but not seeing the correlation? My comment was around any loan, at whatever limit must come out of profits. This is based on the number of people we get coming on here dipping in to CT and VAT money for personal use too often.

**Nixon Williams** · 5 January 2012, 12:01

Originally posted by northernladuk View Post

You quoted my statement but not seeing the correlation? My comment was around any loan, at whatever limit must come out of profits. This is based on the number of people we get coming on here dipping in to CT and VAT money for personal use too often.

A dividend MUST come from profits, but a loan does not have to - not something we would recommend, but a loan can be taken from the working capital.

Provided the director(s) are confident that they can meet the company liabilities as they fall due, then provided the loan is authorised by the shareholders, a loan can be made.

Alan

**SneakySimon** · 5 January 2012, 13:26

Question

That 4% interest sounds low- could I for example take a directors loan of say £40,000 and for the subsequest years pay the 4% interest until I repay it?

And if I could do the above, is it one of those grey areas where you can do it but it is a bit dodgy and could be used against you in some way or other?

**northernladuk** · 5 January 2012, 13:30

Originally posted by Nixon Williams View Post

A dividend MUST come from profits, but a loan does not have to - not something we would recommend, but a loan can be taken from the working capital.

Provided the director(s) are confident that they can meet the company liabilities as they fall due, then provided the loan is authorised by the shareholders, a loan can be made.

Alan

Wow. That sounds like an open invitation for some people to shaft themselves royally. Enough people manage to do it when it is illegal let alone when it is allowable.Didn't know that. Thanks.

**Nixon Williams** · 5 January 2012, 13:30

Originally posted by SneakySimon View Post

That 4% interest sounds low- could I for example take a directors loan of say £40,000 and for the subsequest years pay the 4% interest until I repay it?

And if I could do the above, is it one of those grey areas where you can do it but it is a bit dodgy and could be used against you in some way or other?

You could but the company would be liable for a tax charge of 25% if the loan was outstanding 9 months after the company's year end.

Not a recommended strategy.

Alan

Director loan account query