Directors loan repayment - best options?

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During the 2017/18 tax year £12k of directors salary payments were not processed through payroll for one reason or another.  In the year end accounts these are classed as directors loans and I'm planning on accruing interest at the official rate.  I'm getting myself in a bit of a mess about the best treatment from here on in - write off the loans (and I'm not sure how to do this?) or pay back via payroll over a number of years so that the directors aren't pushed in to the higher rate tax band, but take the hit on company CT in the mean time.  The company is loss making, so dividends aren't an option.  Any advice much appreciated!

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By johngroganjga
26th Jun 2018 12:48

“For one reason or another”

What was the reason. An intention to borrow rather than be paid salary is one thing. An intention to be paid salary but an oversight in making the necessary payroll entries is another.

And are the directors in question in control of the company, or merely its servants?

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By EMilbourn
26th Jun 2018 12:55

Thanks for your reply. The payroll bureau changed part way through the year and the directors weren't moved across to the new bureau. They were paid the equivalent of what would have been their net salary each month for the remainder of the tax year.

The Directors are share holders of 25% of the company.

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Replying to EMilbourn:
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By acceje
26th Jun 2018 13:03

As an error has been made the payroll bureau could file an Earlier Year Update with HMRC to correct the position and advise the company the paye and ni that should have been paid. Then you can show the payments as salary and provide for the paye and ni due.

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Replying to EMilbourn:
By johngroganjga
26th Jun 2018 13:37

So just remedy the omissions from the salary records and move on. There are no loans, just an administrative error that is easily corrected.

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RLI
By lionofludesch
26th Jun 2018 13:10

Either way, interest rates are so low, I wouldn't bother accruing interest at the official rate. Just take the tax hit. It'll amount to buttons.

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By fawltybasil2575
26th Jun 2018 13:54

The key lies in your OP. ie:-

"£12k of directors salary payments were . . . . classed as directors loans".

Those payments of £12K WERE INDEED salary payments, and not therefore (by definition) "directors' loans".

In your later post you say that the directors:-

"were paid the equivalent of what would have been their net salary".

Forgive the apparent pedantry but in reality the directors WERE PAID their net salary (not what "would have been" their net salary).

The company clearly, when MAKING PAYMENT, regarded the payments as salary payments, and this is the determining factor.

Your opening question however says:-

"In the year end accounts these are classed as directors loans."

This comment begs the question as to whether the "year end accounts" have or have not been finalised. If not so finalised, then they simply require correcting. If finalised, then either (i) those Accounts will require correcting or (ii) those Accounts can remain uncorrected [with a Prior Year Adjustment (PYA) being made in the Accounts for the following year]. Of course, if the potential PYA is IMMATERIAL then the Directors' Salaries understatement can simply be put through the Accounts for the following year.

Notwithstanding the action required per my previous paragraph above, then (as "acceje" says) an Earlier Year Update is NECESSARY.

Basil

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