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Clearing overdrawn director's loan account

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Hi there! Any replies highly appreciated.

I have a lorry driver with a private ltd, who has no other source of income and has been continuously withdrawing cash to pay for private expenses. Salary was set as £700 per month. As a result there is an overdrawn dla of £30k for the last almost 2 years (8k & 22k respectively). He can't repay the loan. The first 8k borrowed in 2017/18 was included in the self assessment return in January 2019 and tax is being paid on this.

The business has small amount (5k) cash but a lot of profit.

Question:

Can a dividend of say 35k be issued in March 2019 to clear the director's loan account - 30k offset in the books against dla and 5k paid out in cash to cover his expenses in the next couple of weeks. If I am right thinking this way;

1. There would be no s455 tax due as the loan is repaid within 9 month of the accounting reference date - 30th September 2018

2. An amended SA return can be submitted to reclaim the tax paid on the 8k, income tax will be due on the dividend in January 2020

3. Corporation tax will be due on company's profit in June 2019 (19%) 

4. Should the company charge interest on the loan? Are there any extra reporting obligations if the loab is repaid? Thanks

Replies

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03rd Mar 2019 18:17

Lots and Lots of important questions.

What has the accountant said that you disagree with?

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03rd Mar 2019 18:59

Your profile says you are a bookkeeper.

Unless you are qualified, insured and MLR regulated to give tax advice, you would be well advised not to do it, however well intentioned you are.

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03rd Mar 2019 19:05

You say that £8000 has been reported on the tax return. As what?

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to Wilson Philips
03rd Mar 2019 22:07

As salary for some reason...

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to Renata87
03rd Mar 2019 22:44

??
As well as the salary of £700pm?!!!

Was a PAYE scheme run?

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to Cheshire
04th Mar 2019 08:18

Yes. No there wasn't as the amount was not actually salary but directors loan. It was incorrectly put into the salary box on the SA return. Although the company is now registered for PAYE

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03rd Mar 2019 20:27

BIK on beneficial loan interest is one consideration.

Thanks (2)
04th Mar 2019 10:01

Is the Company solvent?

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04th Mar 2019 13:08

So 16.4k has been declared on the SA return as salary, with no PAYE scheme in place? How did you get past the bit where it asks for the PAYE reference?

In your calcs have you taken into account Corporation Tax? Dividends can only be claimed on the nett profit after Corporation Tax.

You say an 8k dividend was for the previous year, has this been declared in the accounts at the time? It should have been but from what you say it hasn't. In fact if he had 16k before 5th April last year declare it all as dividend, with entries on the DLA prior to 5th April 2018. If there is sufficient nett profit to declare the remaining loan as dividends then fine, but I would be looking to offset as much as I can against salary before 5th April this year, to reduce CT. Any residue will need to be S455, but you have until June to rectify that.

As Accountant A says though, don't attempt this if it's beyond your skillbase.

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04th Mar 2019 14:30

In your efforts to help you risk making the situation worse. If you haven't already appreciated this you are doing the client no favours.

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