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Director's overdrawn loan account since 4 years!

Director's overdrawn loan account since 4 years!

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Hi,

My director's loan account has been overdrawn since last 4 years and I was informed about this by my account a few weeks ago. The amount is around 52,000 GBP. I was told that every year this had been disclosed to the HMRC in compay returns but the part where I should be paying back the interest on it, was missed. Could you kindly suggest me what are accoutant's/my options here? What is the correct and best way to rectify this error and pay back the money that I owe to HMRC?

Is it just as simple as applying the standard interest rate on it and pay the amount back to HMRC (32.5% I reckon) or there is more to it as the payment has been outstanding since last 4 years! I am at my wit's end here and any help/advice would be hightly appreciated.

 

Thanks

J

 

Replies (12)

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Replying to Matrix:
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By lostandfound
14th Jan 2021 17:59

Hi Matrix,

Thanks for the quick response. I take it you are implying that this is just a matter of paying the Corp Tax on the outstanding DL amount by means of usual company returns for the last Yax year. (Plz correct me if I am wrong here)

Thanks
J

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Replying to lostandfound:
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By Matrix
14th Jan 2021 18:23

If the tax due under s455 has already been included on tax returns as you say, then login to your HMRC account and it will show you the amount due. You can use my link to pay the tax paying attention to use the correct reference for each accounting period.

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Psycho
By Wilson Philips
14th Jan 2021 17:51

If your accountant doesn’t know, get a new accountant

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Replying to Wilson Philips:
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By lostandfound
14th Jan 2021 18:02

Hi,

Thanks for the response. My accountant is suggesting to pay the Tax on the outstanding amount as a part of last year's tax return. I am trying to check if that is indeed the correct/best thing to do (From HMRC's perspective).

Thanks
J

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Replying to lostandfound:
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By Paul Crowley
14th Jan 2021 18:12

It is not the correct thing but an easy little cover over
Did he mention the benefit in kind?

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Replying to Paul Crowley:
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By lostandfound
14th Jan 2021 18:16

Hi Paul,

Thanks for the responses. He didn't. So I take it from what you said, this is not the right thing to do. I just googled it and it says that the right way would be to file it in self assessment and not corporation-tax.

https://www.gov.uk/directors-loans/you-owe-your-company-money

Is that what you are referring to?

Thanks

J

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By Paul Crowley
14th Jan 2021 18:01

Confused
The tax should have been paid some time ago

There is interest payable by company if paid late

You also have a benefit in kind for each year unless you were paying the company interest on the loan

This is difficult to miss if a proper accountant bothered to look at it but very easy for a junior to miss unless good software is used correctly

Your accounts are probably dealt with by the office junior

Best would be to get an accountant that knows what he is doing

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By lesley.barnes
14th Jan 2021 22:39

Do you mean that you should have been paying your company interest in the loan so that you didn't incur a benefit in kind and you've not paid any interest? You need to clarify with your accountant what the problem is. If the loan has been correctly disclosed in the company tax return you will have paid corporation tax on it at 32.5%. You need to check the last 4 years returns for the loan pages. If you need to pay additional tax for benefit in kind your personal tax returns need amending it will depend on which years are wrong as to how far you can go back. If you need to correct a P11d that has to be done as a paper copy. Instructions can be found on HMRC website.

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By frankfx
14th Jan 2021 23:45

Dear accountant

Please kindly help me.

I am confused.

I refer to your letter from a few weeks back .

It seems that I and or the company have tax liabilities.

Much to my surprise!

The liabilities appear to arise from my company 2016 accounts.
Yes, four years of ignorance.

Please let me have a full schedule of company liabilities and any interest and penalties that are due.

Likewise a full schedule of personal tax liabilities and interest.

I infer from your letter that HMRC tax returns showing the liability may have been submitted late.

Please let me have a full explanation of errors and omissions, again I am only inferring this from the rather scant information you have provided.

As you know cash is rather tight at present.

Are there any steps open to me to pay tax over the next few months?

I am concerned that I may be lumbered with a large personal tax liability, associated with my company loan.

Could that liability be affected by the next budget?

It seems that higher tax rates and burdens are on the radar.

I really don't like tax surprises.

More so since I thought all my tax affairs were tickety boo.

Do you agree with that sentiment?

By the way, looking at the recent accounts, there does not seem to be tax liability matching the amounts you say are due.

Does that mean that the company accounts are misstated?

I remain confused.

I look forward to hearing from you.

Yours

Thanks (2)
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By Wanderer
15th Jan 2021 01:23

Just to make sure you understand there are three separate taxes relevant here (based on the scant information supplied).

1. Section 455 tax at the rate of 32.5% on the whole loan, payable by the company.
2. Benefit in kind tax due for each of the years that a loan has been outstanding. Payable by you. Calculated at whatever your marginal rate of tax is. 20%/40% etc. Due for each of the years involved.
3. Class 1A National Insurance based on on the benefit in kind at a rate of 13.8%, payable by the company. Due for each of the years involved.

Interest is payable on all these + £100 per month P11D late filing fees if the correct reporting hasn't been done. Then multiply that £100 per month by each of the tax years involved.

That's a really simplistic view and, like with all things tax, in practice it's more complicated than that.

You need to refer this to somebody who knows what they are doing. The chances of you properly correcting it all yourself are nil if you do not have the relevant experience.

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By bernard michael
15th Jan 2021 09:05

How was the Directors Loan disclosed in the company accounts for 4 years

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