New director's loan account rules

New director's loan account rules

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From my reading of the new director's loan rules, these would only apply to new loans taken out on or after the 20th March?

That is to say for a February year end the old rules would apply?

How about a March year end when the loan was taken out prior to the 20th March?

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By ireallyshouldknowthisbut
26th Nov 2013 14:13

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So am I being thick again, or do the other 80 odd people who have been curious enough to look at this not know either?  

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Euan's picture
By Euan MacLennan
26th Nov 2013 14:30

I am sorry! I haven't a clue ...

... what new rules you are talking about.  A link or a summary of the new rules might elicit in some comments.

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By Steve Kesby
26th Nov 2013 15:01

Agreed

S. 455 (which charges the original tax on the original advance) was substituted with effect to loans and advances made on or after 20 March. For periods that span 20 March you do then have to consider when the advance was made, which may now require a more detailed analysis.

The new bed and breakfasting rules in S. 464C and 464D apply to repayment and return payments made on or after 20 March.

And the arrangements conferring a benefit provisions in S. 464A and 464B apply in relation to arrangements that the company became a party to on or after 20 March.

Not sure if I've missed any of the changes that have been made?

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By ireallyshouldknowthisbut
26th Nov 2013 15:11

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@Euan, fair point I was being rather vague. 

I am referring to this legislation

http://www.legislation.gov.uk/cy/ukpga/2013/29/notes/division/1/79

And what I really want to understand is if by "arrangement" they mean the repayment/reborrowing that occurs after the 20th March, so for example a loan account at the end of December 2012 for which S455 would be ordinarily due at the end of September 2013 but a dividend declared to clear it in say April 2013. Would this be an 'arrangement' after the 20th March, or is it irrelevant if the new rules only apply to loans that are made on or after 20th March, so in my example, the loan was made as at the 31st December or prior, so it doesn't matter?

I only have a couple of clients who are likely to get hit with this so I am trying to make sure I don't make a mess of it, typically the ones to whom it applies are flat broke and wont thank me if I got it wrong.  I do always feel a bit unsure after reading this type of legislation if I have gotten the right end of the right sticks. 

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By ireallyshouldknowthisbut
26th Nov 2013 15:16

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Ah Steve has beat me to it following the post above.

So just to check I am not being thick, the logic in plain English:

IF the loan was taken out PRIOR to 20th March, old rules apply

IF loan taken out on or AFTER 20th March, new rules apply. 

Quite how you enter this onto the CT600 is going to be another question at some point no doubt. 

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By Steve Kesby
26th Nov 2013 15:36

No...

... the "new" rules apply differently depending on what's going on:

new advance - only applies to individuals before 20 March, but can apply to trusts and partnerships afterwards if now caught.repayment subsequently withdrawn - new rules apply where the repayment is on or after 20 March. So new rules can apply to old loans. However, in your example where the loan is repaid by dividend, the rules don't apply because the amount repaid (for which s. 456 relief will be sought) is then liable to income tax.benefit obtained on or after 20 March taxable.

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By ireallyshouldknowthisbut
26th Nov 2013 17:13

Thanks Steve, no wonder I feel confused on this one. 

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By User deleted
26th Nov 2013 17:14

Time to be pedantic

I fail to see the relevance of the new legislation to directors loans

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Replying to tom123:
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By HeavyMetalMike
26th Nov 2013 22:54

Don't worry - they don't work

The anti-avoidance rules and bed&breakfasting have been introduced to catch "the bigger picture", ie EBTs and other wheezes.

 

But the worry about you not getting relief from s455 by clearing by dividend post YE if monies are then redrawn doesn't apply.

The B&B rules only operate if clearing of the loan is not otherwise taxable as income.

As dividends = income then we can continue to clear DLA and no s455.

 

But.............expect new rules in FA2014 which may catch DLA.

 

 

 

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Replying to ShayaG:
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By HeavyMetalMike
26th Nov 2013 22:56

Oh, Mr Kesby said as much

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By ireallyshouldknowthisbut
27th Nov 2013 09:55

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Thanks for the help on this one yesterday, I had clearly misunderstood the fundamentals - I think at the time of the budget I had thought this would widely affect all loan positions for directors which is the 'red flag' I had held in my brain for when it came up in practice and is probably why I was struggling to make sense of the legislation.   

So what we are looking at is if the loan is cleared by a "merry go round" payment, eg a Director's loan is OD by £20,000 as at 31st Jan year end. The director privately borrows £20,000 from 'dodgy dave' the money lender, repays the £20,000 to  the company to clear the account and redraws it the follow day to retain his kneecaps, this is caught. 

But if on 31st March a dividend is declared which legitimately clears the loan then it is fine as it is taxable income. 

 

 

 

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