Anyone taken out a directors loan?

bigpappa

I have received two different bits of advice regarding a directors loan.

I have taken out a loan for 27k and I am paying interest on the loan back to my company at a rate of 2.25% (stated minimum required by HMRC). So as I am paying interest there is no benefit in kind to me. But the loan amount will still be outstanding after the year end. So does this mean I have to still declare it on my annual return or not even if I am paying market rate interest.

One accountant says yes the other says no.

Anyone been in the same situation?

oz0707

Ive done it before. Interest was deducted at year end as a paperwork exercise. I think you can not carry the loan forward into the next accounting year from memory, or rules change if you do. 

Pennywise

Your company will have a 32.5% tax liability on the amount of loan still outstanding 9 months after the company year end.  If you repay the loan within 9 months, this tax charge doesn't arise.  

bigpappa

Pennywise said:

Your company will have a 32.5% tax liability on the amount of loan still outstanding 9 months after the company year end.  If you repay the loan within 9 months, this tax charge doesn't arise.  

So after the current year end - whatever the outstanding amount is needs to be repaid within 9 months of that. If it is then there is no extra tax liability and I need to pay interest until the capital sum is repaid in total.

waveneygnome

Correct.

Only other point to make is that if for whatever reason, you can't repay in full, then as an earleir post menetion, your Limited Company has to pay 32.5% tax (called Section 455 tax).  But this tax is not lost entirely.........so long as you do repay the loan, say another year later, then you can recalim this tax THE FOLLOWING tax year.  The repaid tax obviously goes back into the Limited Company.

(If you have other Directors/Shareholders of your company, I strongly suggest you speak/all agree/get it minuted the terms of the loan arrangement, and keep them briefed if you think you are going to exceed the 9 month period, as it can have significant cashflow problems having to stump up tax and wait and wait and wait unitl it is repaid.....as well as the initial loan repayment)