S445 tax V's new dividend tax

S445 tax V's new dividend tax

Didn't find your answer?

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)

Please login or register to join the discussion.

By cheekychappy
05th Feb 2016 17:54

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.

Thanks (0)
By Ruddles
05th Feb 2016 18:30

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.

Thanks (0)
Replying to Slim:
By cheekychappy
05th Feb 2016 18:32

Try

Ruddles wrote:

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 ;-)

Thanks (0)
avatar
By andrew55
06th Feb 2016 09:18

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!

Thanks (0)
Replying to Wilson Philips:
avatar
By qhas
06th Feb 2016 15:20

Brave

andrew55 wrote:

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?
Thanks (0)
Replying to scubajoe:
Red Leader
By Red Leader
06th Feb 2016 16:23

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.

Thanks (0)
Routemaster image
By tom123
06th Feb 2016 10:14

repayment in insolvency


There is also the risk of the debt being called back in by an Insolvency Practitioner if the company goes under.

Thanks (0)
Replying to SXGuy:
avatar
By qhas
06th Feb 2016 15:08

Directors loan

tom123 wrote:


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?
Thanks (0)