Me again !

Me again !

Didn't find your answer?

Apologies for late last minute questions being fired but am asking for help before I go looking (yes cheeky I know)

Client has 31 March year end and at that date directors loan was £20k overdrawn, so £5k of s455 tax is due on 1st January 2013 unless the loan is/was cleared within 9 months of the year end.

Now, if they vote a dividend today for £20k (yes there are sufficient reserves now) and state in the dividend documentation that the net dividend be used to clear the loan account bfwd at 1st April 2012 of £20k will that suffice to negate the s455 liability?. I would point out that since 1st April the director has drawn further sums and at today the loan account is approximately £35k overdrawn.

I seem to recall an earlier thread/post that stated that dividends post year end - or money put into the company for that matter - can be offset against whichever balance the shareholder/director chose.

I will keep searching for the answer but ahead of me finding it any help would certainly enable me to retain what hair I have left !!!

Replies (3)

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By Ding Dong
28th Dec 2012 18:20

Hmm

On further review and research it would appear that the legislation in Claytons case stands and so all dividends and monies repaid after the year end are used to pay off the oldest debt first.

CLAYTONS RULE - http://www.hmrc.gov.uk/manuals/eimanual/EIM26261.htm 

Interestingly, an oft debated subject in this area is whether or not dividends that have been declared actually clear loan account balances or if cash needs to be repaid. Well, HMRC themselves state that "Paying off a director's loan - A director's loan can be repaid by:
•putting money into the company's bank account
the company crediting the director's loan account with a payment - for example a dividend, salary or bonus"

This text is found at http://www.hmrc.gov.uk/ct/managing/director-loan.htm  in the paragraph entitled "Paying off a directors loan"

I am now relatively confident of claiming a reduction in full against my clients loan in this case - as long as the paperwork is drawn up in the next two days!

However - surely - this is too good to be true as it essentially means that for most smaller cases of directors loans they can and will always be cleared post YE using this method and avoiding all s455 liabilities.

Can anyone confirm I am indeed reading this correct!

I need a beer...... or ten !!

Thanks (0)
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By John - Horler Tax
28th Dec 2012 18:46

Entirely correct

 

You are entirely correct in your reading.

It will not negate the loan benefit charge though.

Enjoy the beer.

 

Thanks (1)
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By Ding Dong
28th Dec 2012 18:54

Thankyou

Music to my ears!

Beer will be enjoyed later - one more job to finish up first!

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