Benefit in Kind - Director loan or not?

Benefit in Kind - Director loan or not?

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My client is sole director and shareholder of his company which is a member of an LLP. The LLP was involved in property development over a three year period. At the end of the third year it realised a substantial profit and paid out my client's profit share of  £1,750,000. Unfortunately because the bank account of my client's company had been inactive for the full life of the company, the bank had closed it down. So my client received the profit into his own account where he has held it on behalf of the company. There is no formal legal documentation to evidence this "holding on behalf", other than a board minute to that effect. Since the receipt of the money in November 2014 the company has declared a dividend and received some income and incurred expenses. All of these have been met out of the money in the director's bank account. The dividend was approved by the Board and minted. Clearly no cash was actually transferred. In a month's time the corporation tax will be paid from that account.

Question: I would greatly appreciate your views on what are the tax consequences of this arrangement, and if they are adverse what can be done to mitigate them?

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By johngroganjga
27th Jul 2015 17:42

The tax consequences are obviously those that arise from a company making a loan to a participator.

Those tax consequences can easily be mitigated by the company opening a bank account and the participator repaying his loan into it by the end of next month.

You will still be left with the interest benefit.

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By Portia Nina Levin
27th Jul 2015 17:33

But John

If he still has the company's money sitting there, has not spent it on cocaine and prostitutes for his own jollification, then arguably he is just mere custodian for the company's money.

Then there is no loan. You cannot have the money both as debtor and trustee.

Admittedly, HMRC are more likely than not to share your jaded view.

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By johngroganjga
27th Jul 2015 17:42

No you can't have it both ways. But as he is not a trustee (see what the OP says about the absence of any documentation) he is a debtor.

Yes I accept that there could be an argument that there is no loan, but in the circumstances my advice to repay the "loan" forthwith still stands. Much better to put the matter beyond doubt, especially when it is so easy to do so, than to have an argument even if you expect to win it.

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