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Interest Charge on Loan

Interest Charge on Loan

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Hi All
Four directors ploughed 200k together into their company to purchase an office property.  Fast forward 8 years, the company still owns the office property and rents out the offices, income covers expenses but the directors loans remain unpaid (possibly wont be repaid until mortgage is cleared or property is sold).
Anyway, the company is now starting to generate a profit and CT is payable - I have recommended the directors start charging interest on the loan, expense the ineterest and reduce profits and pay less CT.  I want to advise that they backdate the interest for last 8 years.  Anyone who can suggest any pitfalls to overcome? or offer any beads of wisdom that I need to think about before going down this route?

Thanks

 

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By Accountant A
09th Oct 2019 01:53

Russell Huk wrote:

I have recommended the directors start charging interest on the loan, expense the ineterest and reduce profits and pay less CT.  I want to advise that they backdate the interest for last 8 years.  Anyone who can suggest any pitfalls to overcome? or offer any beads of wisdom that I need to think about before going down this route?

If you have already made your recommendation, what factors did you take into account in reaching that conclusion?

You don't a lot of information but, on the face of it, it's not clear why your proposals are best advice. As I say, considerably more information would be required and I don't think anyone can run through all the potential scenarios without much more details about all the stakeholders involved.

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By Wanderer
09th Oct 2019 05:48

If the interest is to be 'backdated' why hasn't it been accrued in the company accounts for the last eight years?

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By Rweaver
09th Oct 2019 08:40

Is the interest payable being credited to the loan balance? If the company doesn’t physically have the funds to pay the interest I would suggest s.373 may present a ‘pitfall’.

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By SteLacca
09th Oct 2019 08:59

CT61 and personal tax implications in respect of receipt of 8 years interest in one tax year, which have not been accrued and can't possibly have been paid (or entitlement to) established in the previous years?

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