Hi,
I was thinking about the new dividend tax for higher rate payers of owner managed companies of 32.5%. What's to stop the owners/directors from taking money out of the business as loans incurring S455 tax at 25% and never repaying them? It's 7.5% less and would seem there is no downside apart from income as loans rather than dividends, unless I'm missing something? I would appreciate your thoughts on this.
Thanks,
Terry
Replies (8)
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I wish I had thought of your cunning plan!
Maybe it's because:
A loan with no prospect of being paid needs to be written off. A directors loan write off is treated as a distribution. Furthermore, the write off will attract Class 1 National Insurance.
There is some merit in it
There doesn't need to be an intention never to repay it. Idea may be to write it off, or declare dividends to cover it, in stages in the future - when, perhaps, income levels have dropped. And HMRC have yet to successfully apply NI to any write-off of loans made by my clients.
Try
There doesn't need to be an intention never to repay it. Idea may be to write it off, or declare dividends to cover it, in stages in the future - when, perhaps, income levels have dropped. And HMRC have yet to successfully apply NI to any write-off of loans made by my clients.
They can try though ;-)
Brave
I think you'd be very brave if you used this as a tax planning tool and used it for all your corporate clients!
Brave
I think you'd be very brave if you used this as a tax planning tool and used it for all your corporate clients!
Understood. I take it that you have had experience of HMRC investigate the longevity of a director's loan?
footballers
I vaguely recall that some high paid footballers did this when they were in the "45%" band. Apart from the liquidation issue, there's also the bik on the loan.
repayment in insolvency
There is also the risk of the debt being called back in by an Insolvency Practitioner if the company goes under.
Directors loan
There is also the risk of the debt being called back in by an Insolvency Practitioner if the company goes under.
True. But it would still work out cheaper wouldn't it?