I have a client with an overdrawn DLA at the year end which we are looking at clearing before the CT600 goes in at the end of this month. When reviewing the situation he has repaid the account as advised when the accounts were prepared but has not properly grasped the 30 day bed and breakfasting rules and paid his personal tax bill from the company within 14 days of the repayment thereby negating it.
He has made a dividend declaration on 5 March 2018 of £4,000 which he did not immediately draw but then withdrew a further £3,000 on 4 April 2018. It has been a long time since I've looked at the legislation regarding loans to participators but I have in my head that if the repayment is made by dividend then the 30 day rule is ignored but cannot for the life of me find any confirmation of this now. In addition to this do the repayments and withdrawals have to be over £5,000 for the anti avoidance rules to come in to play as we have a number under that limit?
Examples of the DLA credits and debits are:
1/10/17 payment in by way of expenses paid personally on behalf of the company £500
14/10//17 £200 withdrawal in cash
31/12/17 payment in by way of expenses paid personally on behalf of the company £77
15/1/18 payments out for personal expenses £1,000
15/1/18 payment in to clear DLA £10,700
31/1/18 withdrawal for personal tax bill £12,750
19/2/18 withdrawal £4,000
28/2/18 expenses paid personally £300
5/3/18 Dividend declared but not drawn £4,000
27/3/18 Cash withdrawal £100
4/4/18 Withdrawal £3,000
Any help greatly appreciated!
Replies (8)
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Yes, the 30 day rule only applies to the situation where money is paid in to clear the loan and then taken out again shortly after.
Dividends, creating taxable income for the shareholder, fall outside this rule. It is not money paid into the company, but additional money now due to the shareholder.
Watching with interest....i've got an overdrawn directors account to the tune of £7.5k. Just waiting to hear back from the client with some further mileage claims, which I was hoping would take him below £5k. I have somewhere in my head that if below £5k, no need to do anything.... did I dream this? I havent dealt with this situation for some years now and reading recent articles I can't seem to find any info re: the £5k limit, but i'm sure thats how it used to be dealt with???
There is no de minimis limit for S455. Better tell your client to get ready to pay 32.5% of what he can get the balance down to within 9 months of the year end.
Agreed however see the link I have given. It appears £5,000 and £15,000 are break points to consider if repaid within 9 months but with an element of bed & breakfasting.
Ok thanks everyone. Its not a huge balance left but he's basically used his business account to pay all his self assessment bills and its driven him overdrawn in that respect.
He's only got until the end of the month so i'll make him aware of the situation.
Thanks again