Director's remuneration /Interest on loan

Director's remuneration /Interest on loan

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Would reducing a director's remuneration (quite considerably) and instead paying interest on a loan to the company (of again a considerable amount, with the obvious tax advantages of doing so, represent salary sacrifice? I can't see that it would, but I'm getting a sense of paranoia with dir rem planning these days!

what reasonable rate of retun would you set on the loan? Would a higher rate than say the bank rate be justifiable, since the loan is much more risky than say a bank loan?
Adam J Barker

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JPW
By jpwattam
30th Mar 2005 16:40

Be sensible...
By which I mean support your actions, which I suppose is obvious. If your bank charges base + x% for a loan, that is a good starting point, although you'll want to know the cost of an unsecured loan - maybe someone will quote you for a suitable loan that will allow you to support the rate on the directors loan.

I would always try to set directors remuneration at a suitable level - one that would allow the director to maintain a reasonable lifestyle for his status.

I was in a similar position once where the director had paid in personal funds to keep the business going. All he needed was cash as it became available. I accrued interest on the loan and accrued salary as well, and applied cash against the interest accrual first, the outcome being that a lot of salary got accrued but was eliminated in the CT comp until it was paid, and of course not taxed on the director until payment either.

Remember though that the salary should only be accrued - if you credit it to a directors loan account it is the same as actually paying it. (Some people need to be told!)

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