Dir Loan A/c exceeded £5,000 at end of year. Calculated interest charge made by co. against Dir at average balance (closing balance plus opening balce x 50%) x official interest rate.
We are now being asked by IR, who are looking to see if any class 1a is due, to provide dates and amounts of all debit and credit tranasctions for the director.
If the loan account balance accrued reasonably evenly through the year can we use the above formulae for calculating the interest? If so what is to be gained by the IR.
Identifying all the debit/credit entries is not too difficult but will take a fair amount of time, that I'd rather not spend if the situation is clearly equitable.
We have now had a similar letter iro another Dir with an o/d DLA and I should like to nip this process in the bud if I can. I think I am dealing with a newish Compliance Officer and want to be sure I am standing on solid ground before I go too much further.
I would welcome any comments
martin curtis
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Incidentally...
...did the company's Accounts include a note along the following lines:
a) Amount of loan outstanding at start of year £xxx
b) Amount of loan outstanding at end of year £xxx
c) Maximum outstanding in year £xxx
If c) was greater than a) and b), then this could be the reason for the enquiry.
Comments...
Section 183(2) ITEPA 2003 enables an Inspector to use the "alternative" method of calculating the cash equivalent of a beneficial loan, as long as he elects to do so within 12 months of the filing date of the Tax Return for the tax year concerned. I assume that this time limit has not been breached.
However, I would suggest that you take a look at the Employment Income Manual, paragraph 26245, which suggests that the alternative method should only be applied if the tax at stake is likely to be large (for example because the outstanding loan was much higher during the year than at the beginning or end of the tax year concerned). You should be able to establish this fairly quickly, and if you are satisfied that the amount of tax at stake is not likely to be large, then it may be worth pointing this out to the Inspector in a brief letter, and also referring to the comments in the Manual. He/she may then agree that detailed information is not required.
Hope this helps.
Thanks
Many thanks for your replies Michael. I shall write to the Revenue today.
With best regards
Martin