Overdrawn directors loan account and dividends

Do repayments by dividend circumvent the bed and breakfast rules?

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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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Stepurhan
By stepurhan
07th Jun 2018 10:16

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.

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By southgirlaccountant
07th Jun 2018 10:47

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???

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Replying to southgirlaccountant:
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By Wanderer
07th Jun 2018 12:55
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Replying to southgirlaccountant:
By johngroganjga
07th Jun 2018 16:06

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.

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Replying to johngroganjga:
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By Wanderer
07th Jun 2018 16:17

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.

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By southgirlaccountant
07th Jun 2018 16:35

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

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By KTS
12th Jun 2018 13:39

If the dividend is left in place and not withdrawn thereby reducing the loan does this then become "money paid in" and subject to the 30 day B&B rules though? It was more that I had in my head that if the loan repayment was by way of dividend or PAYE income left in place to reduce the DLA then any other withdrawals within 30 days were not treated as withdrawals within the B&B rules but unfortunately I cannot find a legislative reference to confirm this.

Both the dividend repayment position and mention that the 30 day rule only applies to repayments above £5,000 were referenced in an article in Taxation when the rules came in but I cannot find whether this is still the case - seems a little bit too easy to declare a dividend to clear the DLA then take the same amount out a week later to circumvent the charge?

Article is at https://www.taxation.co.uk/Articles/2013/10/09/314721/s-rule

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By KTS
03rd Jul 2018 12:41

Just to update - it took some time but I finally located the legislation relating to this at s464c subsection 6 of CTA2010 which states

“(6)This section does not apply in relation to a repayment which gives rise to a charge to income tax on the participator or associate by reference to whom the loan, advance or benefit was a chargeable payment.”

This also seems to clarify that the b&b rules only come in if repayments exceed £5k in the 30 day period (so 29 days before or 29 days after - I always have to remind myself to look at before!).

Anyone else still interested full details are at https://www.legislation.gov.uk/ukpga/2010/4/section/464C

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