A director has taken a loan, £30k for a few months, repayment was within the corporation tax year. If interest is not paid within the year is this a benefit to reported on P11d? Will payment of interest at the official rate, mean that it is not a BIK? The company is a micro entity and does not have any employees.
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I have always calculated interest (currently 2.5%) on a daily basis on balances over £10,000, and debited it to the DLA on the year end date. This avoids the BIK.
Apologies if I misunderstand this however I think the interest should be calculated on the whole balance.
Also I do not think a debit to the DLA constitutes payment.
Apologies if I misunderstand this however I think the interest should be calculated on the whole balance.
The BIK is only on balances over £10,000, presumably if interest isn't paid at the HMRC rate, or higher, on balances over £10,000.
Debiting it to the loan account is not sufficient to avoid the BIK. The interest must actually be paid (debiting it to the loan account merely increases the indebtedness).
There must also be an obligation to pay the interest.
There is no need to pay the interest by the end of the year, though. So long as there is an obligation to pay, it can be paid at any time (within the normal 4-year time limit) and eliminate or reverse the charge, with a refund of income tax in appropriate cases. However, to avoid the need to report on P11D (and non-refundable Class 1A NIC) the interest would need to be paid by 19 July following the end of the tax year.
You say potato.
Strange how dividends and salaries which are credited to a DLA are deemed to be paid.
I also ensure that all o/d DLA's are cleared by 9 months.
Most interest charges are circa £100 to £200. Not exactly tribunal material versus an email to a client to get the cheque book out + 3 reminders.
Not disagreeing, I bow to your better judgement, just being pragmatic.
Absolutely right. We had a long strand on this subject a few years ago. The interest must be physically paid.
Also, if the balance goes over £10k even for just 1 day, you must calculate interest on ALL overdrawn balances during the tax year, including loans to related parties.
By the way, the Official Rate has been 2.5% since 6/4/17.
I always submit a nil P11D showing the BIK as made good. This is belt and braces, as it is easy for errors to creep into these loan account calculations, and if it turns out that a P11D was required after all (and HMRC find out) they could insist on a late P11D and fine you £400 if it was more than 4 months late. This is fixed by law and (more importantly) fixed by computer, so there are no let-offs.
The penalty for an incorrect P11Ds, on the other hand, is a % of Potential Lost Revenue (PLR) and discretionary. Most small errors would be forgiven as the PLR would be too low to bother with. For instance, a £10k loan for 365 days would produce a BIK of £250, class 1A NI of £34.50 and a 15% penalty for a prompted careless error of £5.
The maximum penalty is £3,000 though, so if the BIK was £100,000 and no Class 1A NI was paid by 19 July, a 15% penalty would be £2,070.
The corporation tax year has no direct relevance to BIK. Only the s455 charge on balances at the year end rely on that.
The only "reason" for not reporting it as a BIK is that HMRC would otherwise never even know it had existed. (if it was taken out and repaid entirely within the year). I would hope it is obvious why no professional accountant should use this as a reason for not reporting.
So long as interest is paid equivalent at least to the Official Rate there is no need to report anything.
Ok This is what you do/ should have done
1. Send in a plld or
2. There must be a loan agreement
It must state amounts and payment terms and interest
The interest that accrues MUST be paid in cash by the director to the company bank account. You cant just Dr it to DLA ( theres a heap of case law on this)
Cr interest receivable Dr other debtors for now? then Cr other Drs dr bank account
Most of the answers on here are right, but not what most people want to hear.
I do P11Ds as it is easier than doing the calculations and asking the client to make an interest payment.
There was discussion a few years ago on here and the conclusion was that the interest had to be paid.
Or is the issue that the company doesn’t have a payroll scheme?
