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Directors loan account interest

Hello

We tend to charge daily interest in the accounts on overdrawn loan accounts . I have the following scenario on a 30/11/11 year end loan account

Date                £

01/12/10        NIL

23/07/10       £35,000 Overdrawn

23/08/10       £4,500   Overdrawn (Repaid £30500 on this date)

05/04/11       £4,500   Overdrawn

30/11/11       £4,500   Overdrawn

Am I correct in thinking that interest is charged from 23/07/10 to 05/04/11 as the loan exceeded 5k overdrawn in that period and did not go back into credit? And the period 06/04/11 to 30/11/11 no interest is due, as the loan did not exceed 5k in the tax period up until the end of the accounting year?

Thanks in advance

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By BKD
20th Aug 2012 16:32

It depends ...

... on what happened between 01/12/11 and 05/04/12.

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20th Aug 2012 17:04

Thanks BKD

Does it matter in this instance?

I thought that as a new tax year has started, there is no interest charged until the loan went back over 5k, if charged on a daily basis? So as long as the loan did not exceed 5k at the year end there is no interest charged up until 30/11/11 regardless of what happened from 01/12/11 to 05/04/12?

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By BKD
20th Aug 2012 17:21

Tax years

As you hint at, you need to look at the tax year - as a whole. If the overdrawn loan exceeds £5k at any time in the tax year, then interest is charged on all overdrawn balances on the loan, regardless of amount. So, for example, if nothing happened until 5 April 2012 and on that date he drew down a further £501 you would need to charge interest right through 06/04/11 to 05/04/12.

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20th Aug 2012 17:39

Thanks BKD

I must admit I thought that if you charged interest daily, you did not look at the tax year as a whole, but at the date it exceeded 5k was when it kicked in.

It makes a difficult, if in my example, you had a 30/04/11 year end, you would not know the 05/04/12 balance by the time the accounts needed filing!

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By BKD
20th Aug 2012 19:17

Problem clients

calvinplummer wrote:

It makes a difficult, if in my example, you had a 30/04/11 year end, you would not know the 05/04/12 balance by the time the accounts needed filing!

There is an obvious solution

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