Dividend or Drawings

Dividend or Drawings

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Guy has 2 businesses - different customers but share some overheads (properly apportioned)

One is Ltd co and one is sole trader - each earn profits of £50k

Dividending one £50k and taking the other as sole trader income creates takes him well above 40% tax band

If the Ltd Co lends the sole trader business £50k and then the money is taken as sole trader drawings (leaving a negative capital account) - the question is what would or could HMRC say
Steve Blackmore

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By User deleted
24th Jul 2008 13:47

They might say...
Close companies must self-assess tax liabilities in respect of any loans not in the ordinary course of business to participators or associates, which can result in the requirement to make tax payments to HMRC equal to 25% of the outstanding loan or advance made during the accounting period. The tax need not be paid if the loan has been repaid, released or written off within nine months and one day following the end of the accounting period. Where the loan or advance is repaid, released or written off more than nine months after the end of an accounting period, the tax paid can be repaid nine months after the end of the accounting period in which the repayment, release, etc takes place. The company should make use of supplementary page CT600A (loans to particpators by close companies) to report details of the loan to HMRC when submitting its company tax return (ICTA 1988, s 419). And much more....

So is he planning to repay the loan? If so how?

The overdrawn capital account in the sole trader is meaningless. And in case you hadn't noticed, the 50k sole trader profit puts him well inside the 40% band anyway

Hope this helps

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By AnonymousUser
24th Jul 2008 13:46

Lots
Section 419; benefit in kind; class 1A. Is that enough?

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