Directiors Loan outstanding-To be cleared?

Directiors Loan outstanding-To be cleared?

Didn't find your answer?

Is it OK to just vote a dividend to him that he does not draw?

If it is written off i assume it is subject to PAYE and NIC in normal way and does it just need to be minuted.?

Many Thanks for any help

david

Replies (5)

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By User deleted
22nd Jul 2005 11:34

Write Off
If the loan is written off, then the Director's income will be increased by the amount written off, grossed up at the Schedule F ordinary rate of income tax (currently 10%), under Section 421 ICTA 1988, with no entitlement to repayment of the notional tax credit. (see the Assessment Procedures Manual at paragraph 3088).This income would need to be shown at boxes 10.24 to 10.26 of the Tax Return. This amount will therefore be taxed in the same way as a dividend.

For the company, any Section 419 tax which has been paid will be repaid nine months after the accounting period during which the loan is repaid (see the Company Taxation Manual at paragraph 6662b).

I disagree with Neil, in that the write off may be liable to Class 1 NIC (see the National Insurance Manual at paragraph 12020). You can argue against this treatment, but the danger remains.

Hope this helps.

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By robguy
25th Jul 2005 13:22

DLA write off - with 2 shareholders/directors
I would tend to agree with Neil in that DLA w/o's are in effect a 'distribution' and therefore treated as a divi.

However, if the Co has 2+ Directors / shareholders and one has a large DLA w/o he has effectivley gained an unfair divi ????? this aspect does cause me concern as it seems an easy way for a Director to gain a divi while NOT actually declaring one based on shares.

Can anyone explain this?

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By NeilW
25th Jul 2005 17:45

Laws
Writing off a loan doesn't create a dividend, any more than IR35 creates an employee. The various laws covering the various taxes treat things in slightly different ways. It's all very confusing - but that is why we get paid by clients.

In company law and for financial accounts purposes it is writing off a loan. For income tax purposes the director is taxed *as though* they had received a dividend, but in reality they haven't.

For CT purposes there are arguments that writing off the loan doesn't trigger the NCDT rate, and arguments that it does. As far as I know this hasn't been tested in front of a court, nor has it been fixed in the Finance Act.

For National Insurance purposes there are arguments that the loan write off to a participator isn't employment earnings (just like a dividend) and therefore isn't subject to NI. There are also strong arguments that a write off is subject to NI.

So perhaps I was hasty in saying that a write off is easier. At least with dividend declaration there is a reasonable concensus on how the various taxes apply to them.

NeilW

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By NeilW
22nd Jul 2005 09:14

Two ways
Either you vote a dividend to clear the loan, or if you write it off it is treated for tax purposes in the hands of the director as a dividend anyway.

The latter is clearly a simpler way of working.

There are no PAYE/NIC implications either way.

NeilW

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By stratty
25th Jul 2005 13:07

Writing off loans
My understanding is that any amount of loan written off incurs a benefit reportable on form P11D.

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