Rees-Mogg’s £6m director’s loan: The factsby
Peter Stoddart uses publicly available documents to explore the facts behind the stories circulating about a £6m loan apparently taken by Jacob Rees Mogg from his own company.
Recent newspaper reports allege that the Rt Hon Jacob Rees-Mogg (JRM), leader of the House of Commons and lord president of the council (with a seat in the cabinet) had failed to declare £6m in loans from his wholly owned company, Saliston Ltd (SL).
Rees-Mogg brushed this off as a storm in a teacup indicating that all loans had either been repaid with interest in accordance with HMRC rules, or paid as dividends and taxed accordingly.
The shadow opposition deputy leader later piled in and referred the matter to Lord Geidt, the independent advisor on minister’s interests. We await his findings on the matter at a later date. The Commons standards commissioner Kathryn Stone launched an investigation into the matter on 1 December 2021, and it remains to be seen what the outcome will be.
What the accounts tell us
The accounts and the charges register at Companies House, for the years (ended 31 March) 2017 to 2020 show that on 20 January 2018 Sailston Ltd increased its borrowing facility with bankers by around £2.73m to £3,975,000. A loan was then granted to its directors of £2,939,790.
The notes to the accounts for 2018 are silent as to the main conditions of the advances made to the directors, apart from an interest rate reference. The following years’ accounting notes reveal that it related to a loan to Rees-Mogg.
In 2019 an amount of £2,314,811 was advanced and £5,171,185 was repaid. In 2020 an advance of £701,513 was made and £716,272 was repaid.
The interest rate reference shown for 2018 was 3.5%. The rate shown for the next following two years was 2.5%, which was the HMRC official actual and average rates for the tax years 2017 to 2020.
The actual interest shown as charged on the loan was shown as blank in 2018, and £46,915 shown as charged in 2019 and, £2,030 shown as charged in 2020.
What disclosures are required?
The Companies Act 2006, s 413 requires disclosures regarding advances and credits to directors and, importantly, there are no exemptions from these disclosure for small entities. The facts required to be disclosed are:
- The amount
- An indication of the interest rate
- Its main conditions
- Any amounts repaid
- Any amounts written off
- Any amounts waived.
SL prepares its accounts under FRS 102, Section 1A. According to guidance on accounting for directors’ loans under FRS 102, in relation to disclosures of transactions between related parties, the company is required only to provide particulars of material transactions with directors that are not concluded under normal market conditions.
However, further disclosures may be considered necessary to give a true and fair view. It is not a requirement of both the CA 2006, section 413 and FRS 102 that the directors name(s) be disclosed.
If a material loan has been provided to a director at below a market rate of interest, or interest free, then as a minimum it is expected that disclosures must include:
- The amount of the transaction
- The amount of outstanding balances, their terms and conditions and any guarantees given or received
- Provisions for uncollectable receivables related to the amount of outstanding balances; and
- The expense recognised during the period in respect of bad or doubtful debts due from related parties.
Other relevant facts and circumstances should be disclosed where this is necessary to enable users to fully understand the effect of the related party transactions or balances.
What was disclosed?
It is manifest that the notes to the accounts for 2018 to 2020 do not comply with the Companies Act and the FRS requirements. The amount of the transaction and the main terms and conditions are not disclosed.
Also, perhaps, is the 3.5% interest quoted in 2018 a declaration of the commercial rate of the enabling bank loan financing transaction? Or just a strange mistake to make?
The sequence of advances and repayments indicates that possible “bed and breakfasting” of the amount borrowed has taken place. This would perhaps go some way to explain the perceived low rate of interest highlighted by the newspaper articles.
The interest amounts disclosed at the rates indicated, would suggest an average number of days of around 280 on which interest was accruing on the average borrowing.
The stretching of the loans across three accounting years is possibly to harvest dividends over more than one tax year to part fund the repayments (per JRM above).
What should have happened
If the company secretarial aspects of providing a directors’ loan have been stringently addressed, then a loan agreement and a memorandum of the terms of the loan would contain a synopsis form of words to meet the above requirements for disclosure.
The absence of this required information is probably the “red rag” that caused the journalist to think that there was something amiss and that - “something should have been seen here”.
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Peter has over 50 years’ experience as a Chartered Accountant; 20 years in public practice, specialising in taxation for half that time, and 30 years in industry. He was Finance Director of Cammel Laird Shipbuilders Ltd and Nissan Motor manufacturing (UK) Ltd.
His work within the public sector includes appointments as Operations Director...