P11d double whammy

P11d double whammy

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Client is a director of his own limited company.
He has a company credit card that he uses for personal and business purposes, spending 16k on allowable business travel and 14k on personal items
Personal items are debited to his directors loan account.

Compliance entries would be:

P11d - section c 30000, section H 14000, triggering a bik on loan interest
CT600 - loan to participator 14000 triggering a CT charge of 2800
Personal tax return (Employment) - section (12) 30000 offset by section (20) 16000, therefore giving rise to an income tax charge of 22/40%

Tax charge is therefore (based on 40% tax payer):

P11d - 14000 x 6.25% x 40% = 350.00
CT600 - 14000 x 20% = 2800
SA Return - 14000 x 40% = 5600

Total 8750

I know that the CT 600 charge will be refunded on repayment.

However, if the company made a "straight loan" to the director wouldn't the SA charge be avoided thereby saving 5600?
Anon

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Euan's picture
By Euan MacLennan
10th Jun 2008 14:12

Eh?
Your double whammy only arises because you have taxed the director on £14,000 of personal expenses paid by the company and at the same time, treated the £14,000 as a loan to the director, giving rise to the s.419 refundable tax charge (actually, it would be £3,500 at 25%).

It is one or the other:
- a BIK of £14,000 of personal expenses paid by the company, giving rise to an income tax charge on the director of £5,600 at 40%, or
- a loan of £14,000 giving rise to a refundable s.419 charge of £3,500 on the company and an income tax charge on the director of the BIK of paying less than the official rate of interest on his loan, which you have calculated at £350.

It is not difficult to see why everyone adopts the latter option, particularly when you can clear the director's loan by declaring a dividend - this avoids the s.419 tax charge and reclaim and the beneficial loan BIK, but gives the director additional higher rate tax on the dividend of £3,500 ((32.5-10)x£14,000/90 or 25% of the net divi), which is a lot less than the £5,600.

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