If the director’s
loan is paid off in full by the end of your company’s accounting period:
· -Your company does not pay corporation tax on the
loan.
· -You don’t need to tell HMRC about the loan on
your Company Tax Return.
You will, however, need to include it in your Company Tax
Return if you either:
· -Take a further loan within 30 days of (before or
after) the repayment.
· -Have arrangements in place for a further loan to
be made at the time of the repayment.
If your director’s
loan is paid off in full within 9 months and 1 day of the end of your company’s
accounting period:
· -Your company does not pay corporation tax on the
loan.
· -You must include details of that loan in your
Company Tax Return.
You will, however, need to pay Corporation Tax on the loan
if you either:
· -Take a further loan within 30 days of (before or
after) the repayment.
· -Have arrangements in place for a further loan to
be made at the time of the repayment.
If your director’s
loan is not paid off within 9 months and 1 day of the company’s accounting year
end:
· -Your company must pay Corporation Tax on the
loan – the current tax rate for a director’s loan is 25% of the loan (i.e. a
company with a director’s loan account which is £10,000 overdrawn will have to
pay £2500 corporation tax on that loan).
· -You must include details of the loan in your
Company Tax Return.
· -HMRC will charge interest on the amount unpaid.
Claiming relief after
your director’s loan has been repaid
If you do have to pay corporation tax and the director’s
loan has been paid back in full, the amount of the corporation tax can be
reclaimed. This can only be done in a window starting 9 months after the end of
the accounting period in which the loan was paid off. Claims must be made
before within 4 years from the end of the financial year in which the loan is
repaid. Any interest paid is not reclaimable.
Director’s Loans that
are written off or released
When the loan is written off or released, it does not need
to be repaid. Instead the amount written off is treated as personal income and
needs to be included on the personal self-assessment tax return, NIC’s will also
need to be paid.
Director’s Loan –
Change to Benefit In Kind
Previously, when the director’s loan account was overdrawn
by £5000 or more, the loan amount was treated as a benefit in kind. The threshold has since been increased to
£10,000.
This means that the director will have to pay income tax
based on HMRC’s official rate of interest of the loan if they owe the company
£10,000 or more. It must be reported on the director’s Self-Assessment Tax
Return. The benefit in kind can be avoided by paying interest to the company on
the loan at or above the HMRC official rate. Class 1A NIC’s will also have to
be payable by the company.
If the director owes less than £10,000 then they have no responsibilities
with regard to income tax and national insurance. They do, however, still have
to adhere to the above rules on corporation tax.
Closing the
loophole on bed and breakfasting
This loophole was widely used as a method to avoid paying
the corporation tax on the loan. Repayment of the loan would be made to the
company before the 9 months and 1 day deadline, but not long later the director
then re-loans the money. Even after the company pays the tax, the loophole was
available to re-loan the money not long afterwards and to then re-claim the
tax.
New rules have been brought in to deny relief where tax has
been paid if, within a 30 day period, repayments of more than £5000 are paid to
the company from directors and which are then later re-loaned.
Where this 30 day rule does not apply, relief will also be
denied if there are amounts outstanding of at least £15,000 at the time of
repayment and there are future arrangements or intentions to re- loan this
money to the director’s.
