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Directors Loan

Hi

To avoid paying S419 tax on an overdrawn directors loan account, obviously you need to pay back the loan within 9 months and 1 day of the year end.  However, I'm unsure which balance would need to be paid back.  Would it be the balance as at the year end date, or the balance as at the date that the loan gets paid back? 

For example if the loan was £10,000 at the year end date and on the CT600, but 9 months later, when paying back the loan, the balance on the overdrawn loan account is £11,000, would it be £10,000 that's needs paying back or the full balance of £11,000? (FYI I have sorted P11D's out).

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Agreed - £10,000

Firstly, it is not s.419 - it is now s.455 CTA 2010.

Secondly, the extra £1,000 was not advanced in the year in question, but in the following year.  s.455 tax is payable only on loans advanced in the year.  The £1,000 would only feature on the CT600A for the following year, assuming that it is not repaid within 9 months of the end of the following year.

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Repayment of overdrawn DLA by voting a dividend

Euan

May I please ask you for a little further clarification on this whole subject?

At year end 30/09/2010 DLA is overdrawn by £10,000, although this is not actually known until accounts are prepared in April 2011. On 05/05/2011 accounts are approved by sole director/shareholder and dividend of £15,000 is voted on same day. No cash is drawn. At year end 30/09/2011 DLA is once more overdrawn by, say, £15,000. Again, this is not known until the accounts are prepared some months later.

The dividend of £15,000 was voted for the sole purpose of clearing the overdrawn DLA at 30/09/2010, leaving an additional £5,000 in hand to reduce any further debits to the DLA during 10/11.

Could HMRC query this situation at all and argue that the dividend of £15,000 does not in fact clear the DLA balance b/f, but instead needs to be offset against the current year's DLA transactions, resulting in s.455 tax still being payable for 09/10?

Many thanks for your opinion and indeed for your many useful contributions over recent years.

 

 

 

 

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You can specify whichdebt is being repaid

As it says in CTM61605:

"Which debt has been repaid?

If there have been a number of advances on a current account and a repayment is made, any parties involved can make a specific appropriation against a particular debt. Where no appropriation is made you should set the repayment against the earliest debt first, following the Rule in Clayton's Case (1816 MR Ch Vol 1, 572)."

So, even if you do not specifically appropriate the repayment to the balance brought forward, the default in Clayton's Case will do it for you.

Beware of CTM61615 on Bed & Breakfasting, which has all the appearance of HMRC guidance in an attempt to prevent avoidance, but without any legal basis.

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Thank you Euan!

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Important clarification to the OP
The loan needs repaying within 9 months - not 9 months and 1 day.

The latter would mean s.455 tax is payable initially. Company would then have to wait 9 months after the end of the period in which the "1 day" falls for its eventual repayment.

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slightly sideways question

I thought i knew the answer to this question but, what do you think?

 

If a DLA is overdrawn by £10,000 at say 31.5.11 and then the year end is changed to 30.11.11 (doing a single period accounts) and at the end of that period it is £15,000 o/d.

 

Does the £10,000 need clearing within 9 months of 31.5 or 30.11?

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Within 9 months of 31.05.11

Although the accounting date may be extended, the first CT accounting period remains the y/e 31.05.11 - tax is payable 9 months + 1 day after 31.05.11 and the loan must be repaid within 9 months of  31.05.11 to avoid the s.455 charge.  This is followed by a second CTAP for the 6 months to 30.11.11.

The only concession with regard to an extended accounting period is that the filing date for the forms CT600 for both the year to 31.05.11 and the 6 months to 30.11.11 is 12 months after 30.11.11.

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Thanks Euan

That's what i thought, just had a confliciting opinion thrown at me, i will just tell them Euan said so!

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Changing year end date - CA 2006

Just wanted to point out that under CA 2006, s392(4) that a company cannot change its accounting reference date if the period allowed for delivering accounts and reports to the registrar for that period has already expired. The period for delivering accounts and reports to the registrar now ends nine months from the end of the relevant accounting reference period.

So if the accounting reference period end date was 31/05/2011 then this could only be changed if done so before 01/03/2012.

 

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