I have a client with substantial directors loan at 31 March 2019. The company has voted dividends after the financial year end based on profits generated since 31 March 2019. The question is, can these be used as 'repayment' of the DL at 31.3.2019 (the director is also a shareholder) for the purposes of the Company s455 tax charge on overdrawn loan accounts that is levied on any DL still outstanding by 31 December 2019, bearing in mind that the director has also continued to draw out funds on the loan account since 31.3.2019, therefore increasing the overdrawn DL.
I understand there is a 30 day rule but I'm not sure whether this is relevant here.
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Crediting the loan account with the dividend is fine - the “30-day rule” to which you refer is irrelevant. Someone will no doubt be along to ask if you are sure that there were sufficient reserves.
Crediting the loan account with the dividend is fine - the “30-day rule” to which you refer is irrelevant.
I read "can these be used as 'repayment' of the DL at 31.3.2019" as meaning backdating the dividend to that date. Shirley that's not OK??
That’s not OK, and to be fair that is also how I initially read it. But second time around I read it as repayment of the amount which was outstanding at that date, without the need to repay the subsequently increased balance.
I read "can these be used as 'repayment' of the DL at 31.3.2019" as meaning backdating the dividend to that date. Shirley that's not OK??
You read something that wasn't written.
"Can an April-Dec 2019 dividend cover a 31 March 2019 loan balance?" was the question posed.
Answer - Yes.
"Can an April-Dec 2019 dividend cover a 31 March 2019 loan balance?" was the question posed.
Well that's not what it says so you might want to get down to Specsavers - or give the hallucinogenic drugs a miss when posting.
lionofludesch wrote:
"Can an April-Dec 2019 dividend cover a 31 March 2019 loan balance?" was the question posed.
Well that's not what it says so you might want to get down to Specsavers - or give the hallucinogenic drugs a miss when posting.
“The company has voted dividends after the financial year end based on profits generated since 31 March 2019. The question is, can these be used as 'repayment' of the DL at 31.3.2019”
How is that not what it says?
“Can a dividend declared post YE clear a YE DLA”. Are you trying to say that you’ve never come across this? This is exactly how 99.9999%* of DLA’s I’ve seen are cleared.
I’d probably note in the board minutes that the dividend was to be used to clear said DLA. Maybe if I remember.
(* give or take)
lionofludesch wrote:
"Can an April-Dec 2019 dividend cover a 31 March 2019 loan balance?" was the question posed.
Well that's not what it says so you might want to get down to Specsavers - or give the hallucinogenic drugs a miss when posting.
It says so right here.
"I have a client with substantial directors loan at 31 March 2019. The company has voted dividends after the financial year end based on profits generated since 31 March 2019. The question is, can these be used as 'repayment' of the DL at 31.3.2019 (the director is also a shareholder)....."
Just take the time to read the question.
I do believe that was the question asked, having mis-read it the first time round. The important word is "at" rather than "on" (31.3.2019).
I do believe that was the question asked, having mis-read it the first time round. The important word is "at" rather than "on" (31.3.2019).
Yes - it says very clearly that the dividends were declared after the year end. There's no implication of back dating.
Agreed, although it wouldn't have been the first time that I'd seen a client trying to book a dividend declared on one date against the loan account with an effective earlier date (to avoid BIK issues ). "Trying" being the operative word in more senses than one!
https://www.taxinsider.co.uk/1684-Directors_Loan_Accounts_Allocate_Your_...
worth a look?
https://assets.publishing.service.gov.uk/government/uploads/system/uploa...
also worth bearing in mind?
Forgive my confusion but what is the date to which the company draws up its accounts? I think we all assume it is 31 March but as that is (also) the Financial Year end (for all) it could be a little confusing.
I raise the point because, for S455 purposes what is important is that the loan is repaid within 9 months of the end of the company's accounting year in which the loan is made (if a charge is to be avoided).
One other point, assuming the year end is 31 March, a dividend based on later profits will be an interim dividend for the year (to 31 March 2020). It is not voted and is only available when "paid". I will not go through the circular discussion but HMRC accept that payment can be made by crediting it to the DLA. So, it is important that entries are made in the company records evidencing the crediting on a date (before the 9 months are up) if you are to avoid a S455 charge. The evidence of minutes etc is not really necessary because it is all about "payment".
Joining rather late in the day, I note the last sentence of the first paragraph re further advances. It is (or perhaps was) my understanding that repayments of such loans worked on the basis of 'last out, first repaid' i.e. the dividends must cover the whole of the loan as at the date the dividend is credited and not just that to the year end. I think the 30 day rule (or an implication of it) is then that there must not be a further loan for at least 30 days
The bed and breakfast rules do not apply to repayment by way of dividend credited to the loan account.
More than happy to be corrected on that point, thank you! However, wonder what HMRC will say if they see a full repayment made by a date within the 9 months rule and then a (substantial) loan started in the year and outstanding at the next year end. Have (and accept that this should be in the past tense these days!) always advised clients not to have an overdrawn balance at a following year end when discharging an earlier loan.
HMRC can say what they want. At present there is nothing in the legislation to allow them to attack such arrangements from a section 455 point of view. If you think about it, the dividend will give rise to a tax charge that might otherwise have been paid as section 455 tax so HMRC are not really losing out. Of course, if the dividends are regular HMRC have other attack options open to them.
S455 (more accurately its predecessor s286) was introduced as a form of anti-avoidance. If taxable income is taken and used to repay the loan, the provisions have done what they were supposed to do. So HMRC have no reason to be concerned.
B&B rules are aimed at circumstances where "repayment" is, for want of a better term, artificial. The legislation allows for a loan to be outstanding for, effectively, 21 months and as with so many other aspects of tax, if a taxpayer uses the legislation to his advantage, so be it. As I understand it, HMG (that is who legislates) had to accept such a situation if CTSA was to work for s455 as well as CT.
Please don’t forget there may well be beneficial loan interest that needs to be reported on a p11d, unless some interest has been charged on the overdrawn loan account.