Directors Loan - Can i do this?

citroen999

hi

i have a small Ltd Co that basically provides a service to numerous clients. All the clients are invoiced on a weekly basis and i'm paid the same day the service is provided.

Currently i pay myself from the business account every Friday and leave a portion of the weeks business income to cover tax etc at the end of the year. As i over compensate for tax, at the end of the year once i pay my tax bill anything left over i take out and pay dividends on it.as

Rather than let the money build up over the year could i not take everything out each week, pay myself as normal, the remainder would be a directors loan but then invest this? So that rather than it just sitting in my business account earning nothing i could buy stocks/shares/funds/isa's etc to earn some interest over the year then when the tax is due i repay the directors loan... btw i currently buy stock / shares etc and i do ok, i'm up over 30% this last year so i'm confident i could make the money for for me.

is this possible to do, is it legal, any pros and cons, or will HMRC frown up on it?

I would ask my accountant but he's on holiday for 3 weeks

tripled

citroen999 said:

hi

i have a small Ltd Co that basically provides a service to numerous clients. All the clients are invoiced on a weekly basis and i'm paid the same day the service is provided.

Currently i pay myself from the business account every Friday and leave a portion of the weeks business income to cover tax etc at the end of the year. As i over compensate for tax, at the end of the year once i pay my tax bill anything left over i take out and pay dividends on it.as

I trust that your accountant has guided you in the tax efficiency of withdrawing from a limited company, and you are taking the optimum blend of salary and dividends from your retained profits.

Rather than let the money build up over the year could i not take everything out each week, pay myself as normal, the remainder would be a directors loan but then invest this? So that rather than it just sitting in my business account earning nothing i could buy stocks/shares/funds/isa's etc to earn some interest over the year then when the tax is due i repay the directors loan... btw i currently buy stock / shares etc and i do ok, i'm up over 30% this last year so i'm confident i could make the money for for me.

is this possible to do, is it legal, any pros and cons, or will HMRC frown up on it?

I would ask my accountant but he's on holiday for 3 weeks

Are you making the most of your business savings? For example, Kent Reliance offers a 4.31% business savings account. Your company could also invest company reserves, although that's not something I have experience of.

In answer to your question, yes, you can lend yourself funds. HMRC has the full guidance on them here: https://www.gov.uk/directors-loans/you-owe-your-company-money The short version of the HMRC guidance is don't borrow a penny more than £10k, pay it back before the end of the company year, and don't take out another loan for at least 30 days after the last one was repaid, if you want to keep it simple and avoid any potential corporation tax and BIK implications.

Personally I keep a bit of headroom in case I need to use the directors loan account for something else, for example I accidentally double pay an expense or put something on a company card I shouldn't have done. I also keep it in cash to avoid the risk of having to liquidate investments at a loss to repay the loan or to pay a tax bill.

I'd also caveat that this advice is worth what you paid for it, your accountant has the professional indemnity insurance to cover them if they give you bad advice

MeteredOut

Do you have other capital to repay the directors loan if the market does not perform like it has for the past year (eg, the orange bloke does his thing again). The taxes on non-repayment of director loans in time can be quite punitive.

With impressive 30% returns it looks like you've invested in more volatile ends of the market in the past year. With that increased volatility comes increased risk, and (with the greatest respect) the past year (barring the past month) has probably been the easiest time in history to make money in the markets.

Bookworm225

notwithstanding what tripled says above, what you propose is high risk since withdrawing money from the company on such a frequent basis would be seen as earnings that should have gone via payroll and be subject to both employee and employer tax as applicable. 
the fact you repay the money might be mitigation but that is a battle you would have to fight with HMRC 

if you want more cash more frequently then you could declare the outgoings as dividends but again pay them less frequently, quarterly is normal, once every 2 months can be argued, but every month would be back in disguised salary territory and weekly would be laughable.
(I assume you currently run a weekly payroll to cover your: "i pay myself from the business account every Friday"? If not, then your accountant is not worthy of the name accountant)

if you do go the dividend route then male sure your company bookkeeping is up to date as you must be able to show that the company has enough reserves from which to pay a dividend each time it declared one,