My client transferred around £50k from the Company Bank account to her personal account during the previous accounting year. She is the sole director and sharholder. She did this because the company acocunt paid no interest and her personal account did. These payments were not processed as salary or dividends. My understanding is that these payments have to be treated as a loan to a director and treated as such for both corporation tax and her personal tax, i.e. P11d showing the notional interest etc. Is this correct, regardless of what her intention was?
Many Thanks
K
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I recall someone claiming that they had convinced HMRC to treat the funds as being held in trust for the company, but only because the account had been set up for the specific purpose and there were NO movements in and out other than the interest and transfers from/to the company. I suspect, though, that you'd find it difficult to persuade HMRC not to treat this one as a loan to shareholder/participator.
Yes - I've done this.
But you have to agree it before the transfer. HMRC come back with conditions which, in my case, were pretty much as Ruddles outlines above.
I suggest she puts the money back, gets that agreement and reinvests it. She'll more than likely take a tax hit on the interest benefit so sooner the better.
Yes of course if you sort it out before the transfer you should have little or no difficulty in establishing that there is a trust. But this question is about what to do when no-one had such foresight.
Yes repaying the money and starting again on a proper basis solves the problem.
I am not sure why agreeing the position with HMRC rather than simply putting a trust deed in place is the efficient way to go. The first person who needs to be satisfied that there is a trust is the accountant preparing the accounts - can they properly include the cash as a company asset? HMRC agreeing that there is a trust notwithstanding that there is no trust deed, is a good start, but surely that's not all there is to it. What about the liquidator who comes after me on behalf the creditors after the company goes into liquidation and wants to know why my accounts include substantial cash balances yet the shareholder is nowhere to be found and the liquidator can't find a company bank account. I would want to be able to produce a copy of a trust deed with the shareholder's signature on to justify what I had done.
Not sure how much a trust deed costs, John, so I'm unable to compare the two from a cost efficiency point of view.
The route we took wasn't onerous. I didn't charge separately for it but it was just one letter and a phone call to say I'd got a reply.
It's not just about cost - it's about the level of protection it gives you to defend your position. HMRC's agreement alone will cut no ice with anyone else.
Well, no, obviously not.
Who would I be cutting ice for ? The director holds some money for the company, he acknowledges that it's the company's money, if the company needs it they can have it back ... I'm not foreseeing a problem.
Who would I be cutting ice for ? The director holds some money for the company, he acknowledges that it's the company's money, if the company needs it they can have it back ... I'm not foreseeing a problem.
Maybe you have led a sheltered life. I do not believe that I am of a particularly nervous disposition but the potential problem I would want to anticipate is the one I set out a couple of posts ago. Company's affairs turn turtle. Shareholder goes into hiding with all the company's cash and is nowhere to be found. Liquidator wants to know how the cash rich company portrayed in my accounts has suddenly become a cashless shell.
Then you have a trust deed and I have a letter from the Government.
I think we'll both be grand.
Director dying might makes matters tricky re uplifting the funds from the bank.
In such an event executors are going to need to sort.
Not sure how they get a right to intromit funds without including said funds in the confirmation (presumably with matching liability to company included on same) but proving this liability to executors without a trust deed may be much more difficult.
I would want a trust deed, things can get a little pear shape after the party who can aver the position/control the position dies.
Note-Scots law terms but suspect same issues elsewhere.
In the absence of a trust deed you face an uphill struggle to show that she is holding the money on trust for the company - and I would not go there.
Agreed - but as I recall, the adviser in question (I'm guessing it wasn't you, then) noted that the company had already transferred the funds, and the [successful] discussion with HMRC came afterwards.
interesting discussion - i would be interested to know how you would deal with the net interest credited - no pun intended - vis a vis company v personal
interesting discussion - i would be interested to know how you would deal with the net interest credited - no pun intended - vis a vis company v personal
Gross interest is the company's income, subject to Corporation Tax with a credit for income tax deducted at source.
As the rates were both 20%, no effect on the CT payable.
You claim the income tax deducted back through the CT return. Never encountered a problem.
No - not at all. Even when the NatWest deducted it wrongly on an account in a company's name - because it wasn't aware that it was a company.
Bit of a Money Laundering oversight there, I thought.....