Hi
if a company charges the director interest on overdrawn directors account (bal. over £10k), does the company get away with P11d and NIC1A, whilst the director gets away with BIK declared? Are there any admin procedures or anything one owes to know? thanks.
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If the debtor pays interest on his borrowing at or above the rate set by HMRC for this purpose there is no taxable benefit, and therefore nothing to be reported on a P11D.
Can you clarify what you are asking?
If you mean: loan is £10,001, £9,999 is interest free and £2 is interest bearing then... no. Just, no. (Read s180 ITEPA.)
I am not a fan of charging "interest" after the event. DLA is o/d £5k in year 1, £11k in year 2, £5k in year 3. "Interest" is charged only in year 2, on the full £11k.
What sort of commercial loan behaves like that? Is the "interest" interest?
That said, you'll "get away with it" 99 times out of 100. (Although, like Lion, I think that an odd turn of phrase.)
Provided the interest is at least the statutory rate, neither the company nor the director is "getting away" with anything.
There is no benefit to declare. The director has paid more in interest than he would've done in tax had there been no benefit.
Admin procedures?
Er, you'll want a contemporaneously prepared agreement between debtor and creditor.
If a client is wavering I throw in 'contemporaneous' and it generally hooks them. After all, what kind of idiot would use a word like that if they didn't know what they were talking about?
I'm not sure why an OMB would want to charge its director interest.
It's just retains funds in the company which the director probably reckons will be better in his pocket anyway.
Plus these are generally trivial amounts we're talking about.
I would guess that it's wholly and, possibly, belatedly an attempt to avoid preparing and filing a P11D and P11D(b).