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Overdrawn directors loan account and CT600

Overdrawn directors loan account and CT600

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A client has a directors loan account with multiple debits of a few pounds to a few thousand pounds and credits for monthly net pay and dividends when results allow (properly documented and credited to the DLA rather than paid out and repaid).

The YE is 31/03/19 and the DLA was first overdrawn by a few pounds in Sept 18 with a daily roller coaster balance ending up at £25k o/d 31/03/19 (BIK reported). The position for this year based on management accounts to 30/11/19 is similar with a balance of £23k o/d at this point (I expect that further amounts will have been debited in December 19) so I consider the 31/03/19 to be fully chargeable at 32.5%. The balance has not been back in credit at any point since Sept 18.

The client is aware of the implications of this and should have the loan cleared at some point mid 2020.  

I use TaxFiler. Can I enter 1 line in Taxfiler showing the loan date as the first point at which it was overdrawn but the total balance at the year end subject to the charge or something else?

Many thanks

 

 

Replies (17)

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By Matrix
17th Dec 2019 12:50

Just put the outstanding loan at 31/3 in the loans to participators section and if you don’t put any repayments then Taxfiler will calculate the 32.5%.

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RLI
By lionofludesch
17th Dec 2019 15:11

Agree. It's just the balance at the year end which matters.

Unless we're talking about the accounts, rather than the tax return, obviously.

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By whitevanman
17th Dec 2019 16:57

I think I would disagree what has been said by Matrix and Lion.
Strictly speaking each debit is (potentially) a loan and each credit is deemed (absent other facts) to repay the earliest loan first.
Say in the Y/E 31/3/19 there was a debit of 100 on day 2, a credit of 200 on day 3 and a debit of 200 on day 4. Strictly, you should report loans of 200 made in the year with 100 having been repaid leaving a net 100 at the year end. No-one actually does this and generally speaking it works OK if you just report the loan as at the BS date. The reason I disagree mostly is when it comes to year 2. If you do not understand (and consider) the strict position, you risk paying tax that is not due.
Say for example there was £25k outstanding on 31/3/19 and further debits in April totalling £2000. Then on 1 May £2000 is credited. That should be identified with the 31/3/19 balance and not the later, April, drawings. So part of the 31/3 balance has indeed been repaid within 9 months and there is no tax on that part. In your case, all the £25k could have been repaid but further sums withdrawn resulting in a £23k overdrawn balance at Nov 19 and no tax would be payable.
It may seem a bit of a PITA but getting it right may indeed "save" tax ( more accurately it would be correct and avoid a negligence claim).

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Replying to whitevanman:
RLI
By lionofludesch
17th Dec 2019 17:05

whitevanman wrote:

I think I would disagree what has been said by Matrix and Lion.
Strictly speaking each debit is (potentially) a loan and each credit is deemed (absent other facts) to repay the earliest loan first.
Say in the Y/E 31/3/19 there was a debit of 100 on day 2, a credit of 200 on day 3 and a debit of 200 on day 4. Strictly, you should report loans of 200 made in the year with 100 having been repaid leaving a net 100 at the year end. No-one actually does this and generally speaking it works OK if you just report the loan as at the BS date. The reason I disagree mostly is when it comes to year 2. If you do not understand (and consider) the strict position, you risk paying tax that is not due.
Say for example there was £25k outstanding on 31/3/19 and further debits in April totalling £2000. Then on 1 May £2000 is credited. That should be identified with the 31/3/19 balance and not the later, April, drawings. So part of the 31/3 balance has indeed been repaid within 9 months and there is no tax on that part. In your case, all the £25k could have been repaid but further sums withdrawn resulting in a £23k overdrawn balance at Nov 19 and no tax would be payable.
It may seem a bit of a PITA but getting it right may indeed "save" tax ( more accurately it would be correct and avoid a negligence claim).

Well, if we're talking about loans of zillions, maybe. Even then, maybe not.

If these are small amounts, as the OP implies, I've better things to do with my time and the client has better things to do with his money than pay my exorbitant fees to save him ten bob.

Let's not forget that this isn't a proper tax. The company can get the money back if only the debtor would settle up.

Stop using your company as a piggy bank would be my advice.

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Replying to lionofludesch:
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By whitevanman
17th Dec 2019 19:24

I might sympathise with the sentiments expressed and, as I say, no- one is likely to chase you for returning the year end balance on the CT return. However, the client should only pay the tax legally due and that means you should look in the 9 months following the BS date for any credits and identify those with the year end balance as repayments, thereby resulting in reduced or Nil s455 tax. 32.5% of £25k might be a lot for the company to pay to HMRC unnecessarily and as I say in my post below, remember the delay when claiming back s455 tax paid.

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Replying to whitevanman:
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By CWservices6064
17th Dec 2019 17:15

I guess I need to look at the detail although I thought the 30 day bed and breakfast rule prevented the earlier loans being cleared CTM61630..........just taking a look at the lovely flow chart CTM61645.

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Replying to whitevanman:
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By CWservices6064
17th Dec 2019 17:15

I guess I need to look at the detail although I thought the 30 day bed and breakfast rule prevented the earlier loans being cleared CTM61630..........just taking a look at the lovely flow chart CTM61645.

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Replying to CWservices6064:
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By whitevanman
17th Dec 2019 19:19

B&B only applies where there is something "fishy" about a loan being repaid and then re-lent across the BS date. Otherwise, the legislation envisages that a loan can be outstanding for upto 21 months with no tax to pay. Remember at the other end there is a delay in repaying s455 tax paid. A bit of analysis can help the client achieve the correct result.

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Replying to whitevanman:
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By Matrix
17th Dec 2019 19:30

It was the OP who said that none of the loan has been repaid and not me.

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Replying to Matrix:
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By whitevanman
17th Dec 2019 19:32

My disagreement was that it is not strictly correct to simply put the BS figure on the tax return. I went on to explain that I ( and no doubt everyone) would probably not lose sleep if you did that BUT the post BS review needs to be done properly to avoid paying tax unnecessarily. In an ongoing situation, that often means reviewing each year and returning the correct figures rather than the BS figure (if only to keep track of the figures).

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Replying to whitevanman:
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By Matrix
17th Dec 2019 19:36

I had understood that the question was how to enter an outstanding participator loan on certain software, so it was a software question and not a technical question. I have not opined on the technical issue which was discussed subsequent to my response.

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By CWservices6064
18th Dec 2019 10:50

Hello,

Thanks for the feedback. I'm still struggling with this so any help with the following example would be much appreciated. I looking for any amount of the Sept 19 dividend that can be allocated to the 31/03/19 year end balance.

31/03/2019 B/fwd (25,179.73)
Apr-19 Various payments (3,885.05) (29,064.78)
Apr-19 Net Pay 1,757.86 (27,306.92)
May-19 Various payments (7,716.93) (35,023.85)
May-19 Net Pay 1,757.86 (33,265.99)
Jun-19 Various payments (1,470.00) (34,735.99)
Jun-19 Net Pay 1,757.86 (32,978.13)
Jul-19 Various payments (7,600.00) (40,578.13)
Jul-19 Net Pay 1,757.86 (38,820.27)
Aug-19 Various payments (3,450.00) (42,270.27)
Aug-19 Net Pay 1,757.86 (40,512.41)
Sep-19 Various payments (7,000.00) (47,512.41)
Sep-19 Net Pay 1,757.86 (45,754.55)
Sep-19 Dividends 35,000.00 (10,754.55)
Oct-19 Various payments (8,409.00) (19,163.55)
Oct-19 Net Pay 1,739.06 (17,424.49)
Nov-19 Various payments (7,450.00) (24,874.49)
Nov-19 Net Pay 1,739.06 (23,135.43)

Bed and breakfasting - my understanding is that, when a loan in excess of £10k is repaid by the director, no further loan over this amount can be withdrawn within 30 days. This does not appear to have happened in this case.

Where a loan of over £15k has been made to a director of the company, and before any repayment is made there is an intention to take a future loan of more than £5,000 which is not matched to another repayment, then the bed and breakfast rules apply. It looks like this would apply here and the total further loans after 31/03/19 exceed the balance at 31/03/19 so there would be no repayment to match to the 31/03/19 balance reducing the s455 charge - correct?

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Replying to CWservices6064:
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By whitevanman
18th Dec 2019 13:21

Have a look at CTM61642 for exception to the B&B 30 day rule. That might help.

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Replying to whitevanman:
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By CWservices6064
18th Dec 2019 13:49

So in my example above, the dividend (Sept 19) being credited to the directors loan rather than paid, is excluded from B & B rules and so can be matched to the 31/03/19 balance as clearing it in full within 9 months so no S455 tax?

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Replying to whitevanman:
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By CWservices6064
18th Dec 2019 13:49

So in my example above, the dividend (Sept 19) being credited to the directors loan rather than paid, is excluded from B & B rules and so can be matched to the 31/03/19 balance as clearing it in full within 9 months so no S455 tax?

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Replying to CWservices6064:
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By whitevanman
18th Dec 2019 16:12

That would seem to be the case both for the monthly salary credits and the dividend.
I don't think the B&B legislation was intended to change things (greatly). It simply put into legislation that which had/could have always applied. For the ordinary "current account" type arrangement where there are regular credits and debits, the position stays, largely, the same as it was. So, identify the (taxed) credits of salary and dividends, with the earliest loan first.

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Replying to whitevanman:
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By CWservices6064
18th Dec 2019 16:30

Thanks for confirming, great news for my client.

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