Overdrawn directors loan account - interest

Overdrawn directors loan account - interest

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Hello,

If interest is charged on an overdrawn DLA, and that interest isn't paid for a few years, does it increase the amount subject to s455 tax? Or is it excluded (as afterall, the interest income will be getting taxed in the company).

Thanks

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By Paul Crowley
10th Mar 2021 12:58

Just think about the double entry

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Replying to Paul Crowley:
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By aidious
10th Mar 2021 13:09

Sorry, I don't follow. It's increasing the overdrawn DLA but I'm not sure if s455 applies to the full overdrawn DLA or just the amounts advanced (i.e. excluding interest).

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Replying to aidious:
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By Paul Crowley
10th Mar 2021 14:19

I consider an increase in DLA means s455

Put the entry anywhere else as accrued income and clearly director did not pay the interest

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Replying to aidious:
Stepurhan
By stepurhan
10th Mar 2021 14:47

Quote:

Sorry, I don't follow. It's increasing the overdrawn DLA but I'm not sure if s455 applies to the full overdrawn DLA or just the amounts advanced (i.e. excluding interest).

Think about the CT600 entry. Does it talk about amounts advanced, or amounts advanced excluding interest or any other amount added to the balance the company will be taxed on?

It is a charge the company pays, but it is really about the personal benefit the participator receives.

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Stepurhan
By stepurhan
10th Mar 2021 13:19

Presumably the interest is being charged to avoid a BIK issue. It has been hotly debated, but some argue that failing to actually pay the interest means BIK still applies.

But I'm not following your logic for the question you are asking. By that logic you are likely to not only be messing up the s455, but the interest calculations as well.

Perhaps time to put this into the hands of a paid-for professional.

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Replying to stepurhan:
Psycho
By Wilson Philips
10th Mar 2021 13:53

I don't know why it should be argued - the legislation is quite clear. Generally, benefits have to be made good shortly after the end of the year to avoid a BIK. There is a specific exclusion for loan interest which is not time limited. However, it remains the case that the interest needs to be paid before the BIK can be avoided or reversed.

The louder argument is on the question of whether interest debited to a loan account is 'paid'.

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Replying to Wilson Philips:
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By Paul Crowley
10th Mar 2021 14:15

A good question
I think we need a debate
I will start
If added to overdrawn DLA I recon it counts as paid
If just chucked to a random money owed to company account not paid

But if it counts as paid then logically an increase in DLA for all purposes because company has made a further advance to director

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Replying to Paul Crowley:
Psycho
By Wilson Philips
10th Mar 2021 15:07

You reckon it counts as paid. But paid by whom?

It can't have been paid by the company, because it is the company that is charging interest.

It can't have been paid by the director, because it has simply increased the amount that he still owes the company.

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Replying to Paul Crowley:
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By Cheshire
10th Mar 2021 15:00

What? Another debate about the same thing thats been debated at least a couple of times in the last few months. Thats two coffee at screen moments today! I must stop the caffeine intake.

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Replying to Wilson Philips:
Stepurhan
By stepurhan
10th Mar 2021 14:39

Quote:

The louder argument is on the question of whether interest debited to a loan account is 'paid'.


This was the argument I meant, though I phrased it poorly. It has been a while since I last saw it raging, so I don't know if any case law has settled the point since.
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RLI
By lionofludesch
10th Mar 2021 13:41

You're overcomplicating this.

If the loan balance has risen during the year, additional s455 is payable (subject to rules on any repayments made in the subsequent nine months).

It doesn't matter whether the balance has increased because of interest, cash withdrawals or his shopping bills at Morrisons. The only question is "is it more than last year?"

I have to say that I'm not impressed with the benefits of directors paying interest on their company loans.

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