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Overdrawn DLA - paying interest

Paying interest on overdrawn DLA to negate S455 tax

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I feel a bit foolish writing this but I'm having a difference of opinion with a colleague.

We have a client who's DLA is overdrawn. They took a large amount of money out of the company without letting us know.

My colleague is of the opinion that if interest is paid on the loan to the company at the standard rate then there is no S455 tax to pay. I believe this is incorrect and this only negates the need to account for a benefit in kind on the potential below-market interest that is being charged.

Am I right?

Replies (7)

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By RetiredTax
22nd Feb 2021 08:50

I'm with you.

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By PandoraSleeps
22nd Feb 2021 09:03

You're right.

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By Geoff56
22nd Feb 2021 09:12

You are correct. In order to avoid the S.455 charge, the loan must be repaid within nine months of the accounting year end. Paying interest of at least the official rate, will only remove the benefit in kind.

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Replying to Geoff56:
panda ketteringUK
By ketteringUK
22nd Feb 2021 09:21

Exactly so. For some reason my old bosses (that is before going on my own) thought the same and kept removing s455 when reviewing and issuing the year end letters to the clients.

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By Paul Crowley
22nd Feb 2021 09:12

HE IS WRONG
Where did he get that idea from?

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Replying to Paul Crowley:
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By Justin Bryant
22nd Feb 2021 09:27

Possibly a search of this forum, considering the many duff answers.

Also, it's often overlooked that if the borrowing is made for certain investments (e.g. in trading p-ship) then no interest has to be paid to avoid a BIK charge.

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By SteveHa
22nd Feb 2021 10:36

S455? You don't say whether or not the director is a shareholder.

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