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Retrospective CT61s?

Retrospective CT61s?

We have just discovered a client director has lent company £100k loan, by remortgaging private hosue.

Has built up £15k in interest since taking out loan 3 yrs ago. No interest ever paid by company, no interest deduction ever put on directors tax return.

Re tax return - relief will be claimed for the loan interest paid. Clients wants company to repay interest to him, therefore minimal effect on tax return as on edge of higher rate so potential refund available from tax on interest paid by co.

Dividends are out of question as there are other shareholders to take into account.

How do we go about paying the £15k interest from the company to the director? Can we pay all £15k in one go - surely this would give rise to an enquiry by HMRC as greater than market rate interest payment in year. Do we need to go back and amend accounts for previous 3 years to show interest payments? Then how do we do CT61s - is it possible to put it all on 1 return and pay 20% en masse, or will we need to do retrospective CT61s for each quarter since the loan was taken out? Can you do retrospective CT61s? Or is it best to write to HMRC explain situation and enclose cheque for 20% tax on interest to date and ask for CT61s to be issued in future?

 

Any help much appreciated.

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16th Apr 2012 14:49

Form CT61

The requirement to deduct tax at 20% and account for it quarterly applies to interest payments actually made, not merely accrued.  The company can therefore pay £15,000 of gross interest in this quarter, deduct £3,000 of tax and pay it over with a form CT61 for the June quarter.

I am not quite so certain about reporting interest income on a personal tax return but again, I believe that it is based on interest actually received, rather than receivable.  The client may therefore go into the higher rate tax band in 2012/13 if the whole £15,000 is paid now, but will have had relief over three years for the qualifying interest paid on the additional £100K borrowing.

I think people are far too keen about amending accounts.  Yes - the interest payable should have been accrued each year, but unless £5,000 a year is seriously material, I would avoid the hassle (and expense to the client) of amending the accounts for the last three years and just correct the omission in the current year's accounts.

One final comment.  You say "We have just discovered a client director has lent company £100k loan, by remortgaging private hosue."  I wonder how you could have failed to notice an injection of £100K three years ago, but if it is not just the interest, but the loan itself, which has been omitted from the accounts, then you would need to amend the accounts.

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cheekychappy
30th May 2012 15:33

Loan interest on personal tax return

On the personal tax return there would be a declaration of £15,000 int received gross . Can the interest paid personally to the lender not be claimed against this income as an expense ????

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By dhalsey
20th Apr 2012 12:47

Treated as paid if accrued to an account on which director draws

Isn't HMRC's stance that interest is treated as paid if credited to a loan account on which the director is free to draw? Otherwise if you simply accrued the interest making a £55k loan account £70k say, if the director was withdrawing £1000 a month, isn't some then drawing on the newly credited interest?

Also, at what point does substance over form come into play? It does seem odd that the director would have 20% tax suffered via a CT61 only to immediately reclaim it in the SAR. Surely expensing the interest as incurred (as another poster in this forum suggested HMRC had agreed with in a workshop), is the best way, for HMRC and the taxpayer. No revenue lost, less paperwork...

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