Interest paid to a director

Interest paid to a director

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My client took out a personal loan to purchase a new business. He loaned the money to his company and the company acquired assets and goodwill etc.

Prior to my appointment, he has been claiming the full amount of interest paid from the company as an expense. I told him that he should be taking net interest and completing form ct61. He would then need to enter this plus the interest paid on his tax return and effectively claim this tax back again.

He asked HMRC at a recent workshop what he should be doing and someone there told him all he needed to do was put in an expense claim and withdraw the gross if he was claiming exactly the amount paid. Is this correct?
EL

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By User deleted
09th Jan 2008 12:07

Thanks Euan
I didn't think I was wrong, but clients always like to believe HMRC in this instances....

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By Euan MacLennan
09th Jan 2008 10:50

No - it is not correct
Do the company's accounts show a loan from the director and interest paid on that loan, which the company claims as a deduction from its profits for corporation tax purposes? Yes.

Is the interest taxable on the director under s.370 ITTOIA 2005 Part 4, Ch.2? Yes.

Is the interest being paid by a company to an individual so that income tax is deductible at source under s.349(2) ICTA 1988? Yes.

Does the company have to prepare a quarterly CT61 return and pay over the income tax deducted? There is only one answer - Yes.

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