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Would this constitute a directors loan?

Hello

I am currently working on the accounts of a LTD company, 1 shareholder / director.

He has used the bank account of this LTD company to pay for invoices for another company, in which he has a 50% share. The other 50% is just held by his business partner.

He has also used the bank account as his own piggy bank  - and I know what I need to do as far as that is concerned - CT600A etc - BUT what I am confused with - ARE the amounts that the company has paid for, on behalf of the other company in which he has a 50% share - will this be part of his directors loan account, or is it simply a trade debtor?

Any help would be great - most info Ive looked at is informative, but just stresses the more obvious points !

Many thanks

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08th Aug 2012 14:35

loan to Co. B

By the looks of it - It is just a Loan Company B, NOT a trade debtor - but Other Debtor, and remember to disclose as a related party transaction.

 

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By James26
08th Aug 2012 15:04

VAT et al

Hopefully he hasn't tried to reclaim VAT in this company on those invoices.

A bit of a mess, it might be better to get some emails in place between entities now where director apologises for mistake and agrees post-fact that he meant to take a loan out and then loan into other company to pay invoices.  Then deal with it as s419 consequences, if late HMRC get a bit of interest.  Not correct and would be a risk on VAT recovery which you would need to make clear.  However, it might be the only practical way to get it sorted out?

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08th Aug 2012 15:49

Many thanks, and Ill follow that advice about getting emails in place!

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Associated for tax?

Also, if he owns 50% of B and has lent a significant amount to it via his own company, it might constitute control of B in which case they will be associated for tax purposes.  Not usually a problem unless profits are high but you'd need to disclose the fact in the CT return (of both companies).

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26th Sep 2012 18:23

A related matter, I have a client who has lent money to his wholly-owned company to finance business projects and loans to other entities. His company has also carried out building work for the owner and has paid for the building materials and recovered input VAT. When the work is completed the company will invoice the owner and charge VAT on the invoice. Following a VAT inspection, the VAT Officer is arguing that the loans from the director constitute consideration for the building work and have created a tax point so output VAT was due when the money was lent to the company. Is this nonsense or a valid point which I can't argue against?

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27th Sep 2012 09:59

Hello, not an expert in this area but I'll put my thoughts in hoping they may help. Unfortunately I don't think the vat should have been recovered on the owners building work should have been recovered, it is blocked and only if the premises are used for business purposes can the vat be apportioned and reclaimed. You may know this already so please don't take offence if you do. I'm assuming that just paying back the vat deducted incorrectly along with any relevant penalties has been suggested but turned down? I would argue that putting the situation back to where it should be is best for both parties, or else the entity is being "punished" . Anyway an interesting one I hope you can let us know what the outcome is.

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