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Submitting a P11D when P35 says that none are due.

I’m currently finalising the statutory accounts for a client and it’s come to light that the director’s loan account is overdrawn by about £12k.

As no interest has been charged/paid on this it’s reportable as a benefit on the P11D however P35s for the year have been submitted stating that no P11Ds are due.

Grateful if anyone could let me know if there are likely to be any repercussions for what, with hindsight, has proved to be an erroneous statement.

As an aside I did consider advising the director to pay interest on the loan and then calculate the s419 tax payable on the grossed up balance, i.e. loan balance plus interest. However EIM26257 states that there has to be a legal obligation to pay the interest in the year for it to be taken into account. As any agreement would be drawn up “after the fact” am I correct in assuming that the retrospective charging of interest is not an option.

Grateful for you thoughts.

Regards

Juliet

Juliet Wilson

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Think ahead
I got so fed up with not having the correct info at P11d time, I now get all directors to write a letter to their company saying that in return for the granting of a loan, they will pay interest at the revenue prescribed rate, as it varies from time to time, on money borrowed from the company.

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Documenting Decision
I take the view that if a director knowingly overdraws his current account, aware that in discussion, (not necessarily at the time of his overdrawing), his accountant explained that the company would have to charge him interest that would be sufficient; it would show the director's intention. Although I would doubt that our be-wigged friends would say that created a legal obligation.

Certainly I think a file note/exchange of e-mails of an actual discussion of the point at some earlier date is much better than a made up minute on the date of the over-drawing.

I have never come accross an inspector who wanted to lose the corp tax on the interest so that he could assess a benefit in kind, although the tax/NI take on a higher-rate paying director would be more; I would guess that they have bigger fish to fry than making a technical/legal challenge to a director/company in a situation where there are good books, good documentation and pukka accounts/returns. I have never had an inspector raise it as a point.

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hmmmmmm.

it'd be very interesting to learn what people actually do in practice as opposed to what they advise on here.

i wouldnt condone back dating paperwork.......

but..... ive yet to see an inspector challenge any interest adjustment of this kind when i dealt with loads of enquiries like this at my previous employment!

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Ah! That'll be why, then!

Thanks Phil.

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@ The Boy
That looks a bit fraudulent to me and I can't advise it.

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Why can't you......
.....draw up a board minute at the date the DLA went overdrawn to say that the director will pay interest, by way of a debit to his loan account, at the end of the AP if the loan has not repaid? Doesnt a legal obligation exist then?

Surely this isnt retrospective/backdating dating of interest. Isnt it merely late preparation of paperwork to record a decision that was made at the date the DLA went overdrawn (which I'm sure it was)?

Just wondered.....

I'm sure there are other posts on this.......

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I agree with Phil
If you submit P11D and P11D(b) by deadline, there should be no penalty The box is apparently there on P35 so that the employer didn't need to send in a 'nil' P11D(b), thus saving unnecessary form-filling.

Also agree re interest.

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Sorry to bring this back up
But what are folks' thoughts on payment of interest? Post above suggests that debiting the interest charge to the loan account will constitute payment. But does it? It seems that the charging to the loan account is only recognising the obligation to pay interest. Until it is cleared, no interest has actually been 'paid' for the purposes of reducing beneficial loan charge. Director's loan accounts are often credited with bonuses and dividends, such credit entries being treated as payment of the outstanding obligation. I find it difficult to see how both a debit and a credit to the loan account can constitute payment.

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