Query on company paying interest on Directors loan

Query on company paying interest on Directors loan

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My friend is a director of his limited company.  He borrowed money from his bank which was subsequently loaned to his company.  Is he allowed to claim the interest payments from his company and have his company pay the costs of servicing the debt?

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By Warwickshire Accountant
28th Aug 2009 16:35

sort of but like this.....

1 - Yes the company can pay the director interest on Directors Current Account, but it will have to deduct interest and pay it over to HMRC on a quarterly basis along with the CT61 form (http://search2.hmrc.gov.uk/kbroker/hmrc/forms/viewform.jsp?formId=3290)

2 - If the loan is a qualifying loan (http://www.hmrc.gov.uk/helpsheets/hs340.pdf) then he would be able to claim the tax relief on the interest payments against his personal income.

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Euan's picture
By Euan MacLennan
01st Sep 2009 10:10

Yes, but ...

I think the previous poster meant that the company would have to deduct income tax at 20% from whatever interest it pays to the director on his loan to the company and pay the tax over to the Revenue quarterly with a CT61 return.

Also, the director will have to report the interest received net of basic rate tax from the company as income on his tax return, as well as claiming the interest paid on the qualifying loan obtained to fund his investment in a close company.

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By User deleted
01st Sep 2009 10:33

Background
Not sure of the circumstances surrounding the loan, but if the company is unable to raise finance itself is this indicative of trading difficulties? If so then you need to be aware of the legislation on preferential transactions leading up to an insolvency.

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By NewACA
20th Apr 2012 13:53

Don't need to do CT61?

Not done one myself yet, but it seems to me you can avoid the CT61 paper & tax chase etc, by ensuring the company doesn't pay interest to the director for the loan the director made. The director simply gets the tax benefit rather than the company for the loan he made to the company by including the qualifying loan interest as a deductible payment under S.390 or 392 of ITA 2007. This deductible payment is then deducted from his/her taxable income on the personal tax return (assuming he/she has some taxable and doesn't lose any personal allowance).

Obviously only worth doing as the original poster says the company is owned 100% by the director (as it is "his company"). Money can then be taken out to pay the interest of the director by the company making dividends to the sole shareholder, the director. Assuming the company is profitable of course!

 

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By Spanish
01st Dec 2014 15:39

Ct61
Please can someone help.? Do I still need to complete C61 if interest in not paid but added to the loan made to the company by a director.?

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By Spanish
05th Jan 2015 12:57

Dividends

Please can someone help?

A company has three shareholders two @ 40% and one at 20% . Are there any circumstances shareholder @ 20% can get equal dividend to others.? Can the board decide to distribute equal dividends.  

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By Spanish
09th Jan 2015 13:02

New Shareholder

A company has no goodwill in it's accounts.  A new shareholder is paying 50k for 10% of the company (10 shares) Can goodwill be generated for (50000*100/10) £500000 .? Should new shares be issued or could the accounting entry only be debit goodwill and credit share capital .

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By Spanish
14th Jan 2015 12:12

Please can someone help with my previous post re new shareholder?

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