We have a new client at work that have received loans historically from each of the company Directors. Interest is charged on these at a market rate but rather than being physically paid to the Directors, it is credited to their DLAs. They've not previously completed CT61's but I'm not sure whether they should have!
All of the HMRC guidance I can see on this mentions that the CT61 is to be completed when interest is PAID. Does this mean physically or when made available to the Directors (i.e. when credited to their loans)? It doesn't seem to tally up that the company receive a CT deduction for the interest paid, but no-one is actually paying tax on the interest received. Should the interest be added back in the tax comp? If a dividend was credited to the DLA, for instance, that's generally treated as paid with tax payable on it.
If it is only when the money is physically paid out to the Director, how is that determined? In a simple example, if the Director loaned the company £100k @ 5%. He has a DLA of £105k at the end of year 1. He then withdraws £10k - is this treated as £5k capital and £5k interest...no doubt he'd argue it was a repayment of the capital, so no interest element PAID and no tax therefore.
Any assistance would be appreciated.