Share this content
0
3890

S455 tax on director's loan account

What is the process of declaring the loan on the CT600 and informing HMRC of repayment

Hi all,

I run my own one-man limited company and over the years have built up from initially doing the book-keeping to now completing VAT, payroll, self assessment and (more recently) statutory accounts and CT600. I'm not an accountant but I am confident to handle what are relatively simple tax affairs.

To date I haven't used my director's loan account (at least not to borrow money from the company), however this may be worth doing later in the year (I won't bore you with the details of why, but just to state that there is plenty of money to do this and still meet the company obligations).

I understand that if it is over £10k it must either be treated as a BIK or interest must be paid at the current rate stipulated by HMRC (3% I think at the moment). I also understand that if the loan is still outstanding 9 months after the end of my company financial year S455 tax will be due at 32.5% and that this can be reclaimed when the loan is eventually repaid.

The loan will be in place at the end of the company financial year but will be paid off before the 9 months period following that, so my question is around the process that needs to take place to declare this in my statutory accounts and CT600. The accounts are straight forward, no impact on P&L, debtor added to current assets on balance sheet equal to the amount of the loan. I am also assuming there is somewhere on the CT600 that the loan can be declared? The part I don't understand is how to inform HMRC that the loan has then been repaid to avoid having to pay the S455 tax and then reclaim it.

If I have repaid the loan by the time I actually submit the accounts for that year is there anywhere in the process I can say "OK, here is the financial position at the end of the year, but I have now repaid this loan and don't owe the S455 tax." Or must the CT600 be submitted based on the position at the end of the year (where the loan was obviously still in place) and then HMRC contacted separately?

I'm just trying to determine if this is going to be an administrative burden or if it is relatively simple to do?

Any help very much appreciated.

Regards,

Mark 

 

Replies

Please login or register to join the discussion.

avatar
22nd Feb 2018 14:27

"debtor added to current assets on balance sheet equal to the amount of the loan."
This seems to indicate that the company owes you money

Thanks (0)
avatar
to bernard michael
25th Feb 2018 22:04

bernard michael wrote:

"debtor added to current assets on balance sheet equal to the amount of the loan."
This seems to indicate that the company owes you money

??!??

Thanks (0)
avatar
to atleastisoundknowledgable...
26th Feb 2018 09:38

In case you all think I've gone mad (?der) I read the question as
Debtor + Current assets = Loan
Hence my query

Thanks (1)
avatar
By markW81
22nd Feb 2018 14:31

No, a debtor is somebody who owes the company money. I'm not sure you are going to be able to help with this question if you don't understand that, but thanks anyway for the comment.

Thanks (1)
By Ruddles
to markW81
22nd Feb 2018 14:42

I'd normally advise those seeking help to refrain from insulting existing members, but you have a point in this case.

But you should understand that this is not a site for handing out free accountancy and tax advice to Joe Public. Your skills may have taken you so far, but if you've reached the point where you need professional help, be prepared to pay for it.

Thanks (5)
avatar
By markW81
to Ruddles
22nd Feb 2018 14:46

Hi Ruddles,

That is fair enough and if nobody is willing to share the information I have no problem with that. The loan isn't an essential thing for me to do, I was just looking to see if I could find out some information.

Regards,

Mark

Thanks (0)
22nd Feb 2018 14:45

There are supplementary pages to the main CT600 in which you declare the loan. Within the same area there is also the facility to show when the loan was repaid.

Thanks (3)
avatar
By markW81
to andy.partridge
22nd Feb 2018 14:47

Thanks Andy, that's really helpful.

Thanks (0)
avatar
22nd Feb 2018 14:45

Terminological inexactitudes are what make this site interesting particularly when the OP doesn't explain himself/herself adequately for informed advice

Thanks (0)
avatar
By markW81
to bernard michael
22nd Feb 2018 14:48

Thanks Bernard, I think I explained myself clearly, but not looking to fall into any argument with anyone.

Andy has given a useful response so I am happy with that. Thanks again for commenting.

Best regards,

Mark

Thanks (0)
22nd Feb 2018 15:00

I agree with Ruddles, but I will say two things.

There are legal obligations about disclosing the loan in all versions of the accounts, including the version for Companies House. You appear not be aware of these.

Where the loan, and the repayment of it within nine months of the year end, are disclosed to HMRC is in the sections of the corporation tax return provided precisely for that purpose.

Thanks (2)
avatar
By markW81
to johngroganjga
22nd Feb 2018 15:11

Hi John,

Thank you for your comment, that's really useful information.

I thought there would be a section in the tax return for that, when I have previously done returns I obviously have just skimmed over it because it didn't apply at the time.

The point you and Ruddles make about the free tax advice is fair, I wouldn't give out my professional services for free either. I just struggled to find a reliable accountant so in the end doing it myself (although not ideal) seems to be the lower hassle option.

Thanks again for the comments, much appreciated.

Mark

Thanks (0)
avatar
By markW81
to Briar
22nd Feb 2018 16:24

Briar,

That's brilliant, exactly what I was looking for. I guess it will be at version 3 now, but a similar format no doubt.

Thank you all for your help, think I have the process clear in my head now.

Best regards,

Mark

Thanks (0)
avatar
By SXGuy
26th Feb 2018 11:03

On a side note is there a reason why you choose to take money as a loan and not another way? There are cash free amounts as dividends you could take if not already.

And the remainder could possibly only be taxed at 7.5%. Depending on your other income.

But you won't have to repay it, and the rate at which you pay tax compared to interest will be massively lower.

Thanks (2)
avatar
By markW81
to SXGuy
26th Feb 2018 19:20

Hi,

Thanks for your comment. The reason for the loan is I will have already taken dividends up to the top of the basic rate band and, although there are further reserves in the company, I don't want to pay the higher rate tax. The loan would simply be an advance on the following year's dividend that I can then put to good use rather than it sat in my business account earning next to nothing.

I may not even do it, I was just curious as to what the reporting process would be. It seems fairly straight forward, it's just a matter of knowing where to put the information, which I now do thanks to the great feedback from the forum.

Regards,

Mark

Thanks (0)
By cfield
26th Feb 2018 13:19

The HMRC Official Rate went down to 2.5% on 6/4/17. Note you have to pay this on the whole value of the loan during the tax year, not just when it exceeded the £10k.

You can either work it out on a daily basis (known as the alternative precise method) or use the normal averaging method. I find the former quicker and easier.

Strictly speaking, the interest should be paid by 19/7 in order to avoid a taxable benefit. It must also be a physical payment unless the loan account is back in credit by the tax year end, in which case a book entry will suffice.

A P11D is technically still required even if the interest is paid. You just show a zero benefit and complete the dates and amounts in the loans section. Might seem a waste of time but if the P11D has been filed at least they can't fine you for a late return if it turns out there was a benefit after all (these calculations are easy to get wrong - all it takes is a missing item or a spreadsheet error) so best to be on the safe side.

You've now discovered the CT601 which answers your other queries, but if you weren't able to repay the loan within 9 months, there is nowhere on this form to claim a rebate later. In that case, you have to download a form called an L2P and send it in with a letter.

You can knock the refund off your corporation tax bill if you can't wait for them to get round to it, but be warned, it will probably trigger an underpayment and letters from Debt Recovery before they offset them at their end.

You may also get a letter saying you claimed the refund too early, as you have to wait a year, but they do get very confused about this and may have got it wrong.

Thanks (2)
avatar
By markW81
to cfield
26th Feb 2018 19:26

Hi,

Thank you for your detailed response, it's much appreciated.

I was aware of the interest being due on the whole loan value, but hadn't appreciated a P11D would still be due. My understanding was one wasn't required if there was no benefit, however I am certainly no expert on P11Ds (I have made a point of avoiding any BIK to date so I don't have to bother filling one in) so I will take your advice on that.

Sounds like not repaying within 9 months triggers some additional problems so if I do take the loan I will make sure it is definitely repaid before that date.

Thanks again for the feedback, really helpful!

Regards,

Mark

Thanks (0)
By cfield
to markW81
26th Feb 2018 19:29

markW81 wrote:

Hi,

Thank you for your detailed response, it's much appreciated. Thanks again for the feedback, really helpful!

You're welcome. That will be £150 + VAT please.

Thanks (0)
avatar
By markW81
to cfield
26th Feb 2018 19:44

:)

Thanks (0)
By cfield
to cfield
26th Feb 2018 19:31

cfield wrote:

You've now discovered the CT601 which answers your other queries

I did of course mean the CT600A before anyone picks me up on it.

Thanks (0)
avatar
By Briar
to cfield
26th Feb 2018 22:45

I couldn't be bothered - there has been so much rubbish spoken already

Thanks (0)
avatar
16th Jul 2018 11:18

Interesting, I clicked on a link on an Accounting Web email to what was supposed to be an article about CIS for landlords and ended up here.

Thanks (0)
avatar
By sueber
to petestar1969
16th Jul 2018 11:39

Me too - too confusing for a hot Monday morning!

Thanks (0)
Share this content