remove money from company bank account for interest

2stixoftwixes

My husband and I are directors of our own Ltd company

In the company bank account, there is a very big cash holding which we usually leave until March and then max out the pension contribution and take a dividend each.

This money is earning 0% interest.   Therefore could I theoretically remove the money that I won't need for the company as a directors loan, put it in an easy-access savings account at say 2%  and then withdraw it and put it back in the company bank account in March, and I keep the interest?

If we took it as a dividend/ pension now, there would still be lots left over so I'm looking at maximum ways to get more from the company money

gee9fam

Have you considered opening a business savings account, plenty around and interest rates improving, see https://moneyfacts.co.uk/business/business-savings-accounts/ for a few examples.

Grumpy_chap

A business deposit account that pays interest would be far simpler.

The rules around loans to Directors are complex but can result in BIK arising for the deemed interest (which might be higher than the actual interest after tax).

MDMD

Grumpy_chap said:

A business deposit account that pays interest would be far simpler.

The rules around loans to Directors are complex but can result in BIK arising for the deemed interest (which might be higher than the actual interest after tax).

May not be applicable here if there is a plan to pay back in March but depending on the company loans to participators carry a 32.5% corporation tax charge if not repaid in 9 months. The tax is refundable when the debt is repaid but has to be claimed back.

Jeremy535897

There are two potential charges, as described above. The loans to participators rules have anti-avoidance measures to prevent bed and breakfasting loans over consecutive years:
https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm61630

There is also a benefit in kind if the balance exceeds £10,000:
https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees/whats-exempt

The company's articles of association would need to be checked to ensure such loans are permitted.

2stixoftwixes

We are a tiny husband and wife home-based e-commerce business.

No problems paying it back before the year-end,  nothing in the articles of association to prevent it, cash surplus in business due to staying under higher rate tax thresholds over the last couple of years

Jeremy535897

The official rate of interest is currently 2%, so if you took a £50,000 loan for a year the benefit would be £1,000. Tax and class 1A national insurance are payable:
https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees/what-to-report-and-pay

2stixoftwixes

So confused
I read the page on the above link,   then went to the What's exempt page
https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees/whats-exempt

What's exempt

You might not have to report anything to HMRC or pay tax and National Insurance on some types of beneficial loans.

This includes loans you provide:

• using a director’s loan account as long as it’s not overdrawn at any time during the tax year

It won't be overdrawn, the cash is sat in Santander earning 0% and will be returned in full in March

Grumpy_chap

2stixoftwixes said:

This includes loans you provide:

• using a director’s loan account as long as it’s not overdrawn at any time during the tax year

It won't be overdrawn, the cash is sat in Santander earning 0% and will be returned in full in March

BUT, the Director's Loan Account will be overdrawn based on what has been said up thread.

If the Directors deposit, say, £10k start up capital into the business bank account, the the Director's Loan Account is in credit by £10k - the credit is a liability that the business will need to repay at some future point.
If the business then repays the Director's Loan Account, say £6k, the Director's Loan Account is in credit by £4k.
If the business then makes another £6k payment into the Director's Loan Account, that would mean the Director's Loan Account has a balance of -£2k (debit balance or overdrawn by £2k).

Do not confuse the Director's Loan Account with the business current account.

Jeremy535897

If the company lends you money when there is no money owed to you by the company, your director's loan account will be overdrawn. Where you choose to put the cash, once it is in your name rather than the company's name, is not relevant. Nor is it relevant that the cash is currently earning the company nothing.

2stixoftwixes

Thanks, I understand now.

So If I chose an easy access business account.   Any interest would be paid gross to the company and then subject to corporation tax.   This would be the only charge - have I got that right?