In spite of repeated warnings a client kept on drawing the money out of his limited company; net result is a debit balance on his Directors Loan Account at year end of 25,000 which he has advised he cannot repay into the Company before the 9 month deadline after year. Allowable dividends have alreasdy been declared up to the total of available "after tax" profit so no further dividends can be declared to clear the loan.
The Corporation Tax bill for the year is also approx 25,000 which the Company cannot currently pay either. So basically if he had been able to repay the Directors Loan balance the Company would have had the money to pay the Corporation Tax. However now he is faced with the Corporation Tax bill of 25,000 plus S455 of 32.5% on the DLA balance of 25,000 ie 8125.
The penalty regime for late payment of Corporation Tax is fairly gentle, generally just requiring interest to be paid at 3% per annum until HMRC appoint the heavy boys to try to collect.
Just wondering what the penalty regime, if any, is for the S455 charge.
I know if he repays the DLA in due course the S455 is refundable but the refunds are only repayable by HMRC a long time after the DLA is repaid.
The client is past retirement age and drawing state pension. I suppose the Company could write off the DLA before the 9 months is up to avoid the S455 although he has never had a PAYE scheme set up. Do you have to have a PAYE scheme to be able to do this? Given his age would NI be payable by employee or employer on the amount of DLA written off or would it just be PAYE because of his age?