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P11D not completed for year to March 2011

I have a client with a March 2011 year end and overdrawn directors loan account and no P11D submitted as no interest was paid on this overdrawn account. How do I correct this? Complete a P11D and P11D(b) and submit it. What are the consequences for this lateness? Thank you in advance for any comments.

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19th Dec 2011 21:09

It may be easier just to account for an interest charge to the director in the 31 March 2011 accounts and add this on to the overdrawn loan account position.

Having said that, I had a March 2010 set of accounts, submitted late in January 2011, and it turned out the company had provided a director with a car they hadn't told me about.  I submitted the 2009/10 P11d along with the payment for class 1A on the company car benefit (six months late) and there were no interest or penalty charged applied......I think we were lucky though - I had advised the client to expect £100 per month penalty.

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Retrospective?

pjclar02 wrote:

It may be easier just to account for an interest charge to the director in the 31 March 2011 accounts and add this on to the overdrawn loan account position.

How comfortable are you with that if there was no contemporaneous resolution stating the loan terms?

I don't have an answer to that but some might liken it to backdating of documents to gain an advantage which is a definite 'No-no'. What do others think?

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20th Dec 2011 09:01

Is the loan interest on the overdrawn directors loan account allowable for CT purposes?

 

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20th Dec 2011 10:50

What do you mean by allowable?

The interest charged on the overdrawn DLA is the company's taxable income.

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20th Dec 2011 11:02

Yes - realised after I posted this dull question, apologies.

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20th Dec 2011 11:42

So just to clarify. As I have another client in this situation with a march 2012 year end. Where a director agrees to pay the company interest to avoid a beneficial interest benefit in kind there must be a resolution or agreement stating the loan terms?

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By DMGbus
20th Dec 2011 13:31

Advice to client BEFORE situation arises - NO RESOLUTION

Generally I always advise clients to NOT get their Directors Loan Account (DLA) overdawn, and I add that if it were inadvertantly to go overdrawn then they should agree to paying interest to the company (their employer) at the official interest rate otherwise by debit to their DLA.

No resolution required the advice and directors decision has been given (and recorded).   No resolutions.  No board meetings.  No notice of board meetings.  No writing up of board minutes for this circumstance.  The facts outweight the hypo-theory.  A loan arises, interest is paid on it, so no benefecial loan in fact exists or ever existed (unless a board meeting / resolution was recorded to grant the loan as interest free - the default position in the real world is that loans carry interest unless something to the contrary proves otherwise (not the other way round as some might speculate).

Equally no resolution ever seen to exist to agree to an interest-free DLA unless specificially so agreed.

HMRC and my colleagues have had no problems with this approach, and none of my very experienced colleagues in tax have ever heard of this business of using words like "resolution" and "contemporaneous" in this context.   In the real world in the stated context these hypothetical things just don't seem to be used, however "good" or "recommended" they might seem in hypo-theory.

 

 

 

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Default position?

I would suggest that the default position for a sole director of a company, who has 100% ownership of issued share capital, is that interest is not paid on a loan that arises. It wasn't so long ago that accountants thought it fine to shoehorn a dividend into the company accounts to clear an overdrawn director's account.

As it happens I hear the word contemporaneous quite often. I expect we move in different circles!

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By DMGbus
20th Dec 2011 18:26

Contemporaneous + resolutions never heard of in context of P11Ds

It is perfectly common, normal and acceptable for a company to bear a director's personal cost then have it debited to the directors loan account eliminating any Benefit in Kind.

No need for any contemporaeneous notes.

No need for any board minutes.

No need for any resolutions.

The above is just the way it IS for small companies and no problems in the real world, no hypo-theory involved inventing unnecessary hassle.

Ditto. interest on a beneficial loan - just another *potential* BIK the facts outweigh the hypo-theory.

 

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By dhalsey
20th Dec 2011 20:10

Interest capitalisation?

It's all well and good stating that you can just journal an interest charge to escape the problem, but I was under the impressiona that HMRC refer to this as "interest capitalisation" and it is therefore not interest paid.

http://www.hmrc.gov.uk/manuals/eimanual/eim26251.htm 

 

And therefore don't accept it. For interest paid to relieve the company of the obligation to P11D the BIK, I thought the interest had to be physically paid, or if, as a last resort, it must be journalled, you might possibly be able to argue that when the balance is cleared by a dividend etc, it has been paid at that point.

 

Also, I don't think it's very helpful for respondents to refer to "it's best to educate the client not to go overdrawn". Obviously it's ideal not to, but the problem is there and we are being asked to comment on a solution...

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21st Dec 2011 10:17

Thank you all for comments and tips and yes we don't live in an ideal world where people do as they are told (including my children) and I am sure we all have the one or two clients whose directors accounts become overdrawn. Probably in hindsight it is these ones who should not operate a Ltd company and stay as a sole trader to avoid or the above hassles.

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