Loan to director
Discussion
I have a limited company with some money in it. I don't trade from the company any more. I'd quite like to take about 30k out and use it for personal spending and then make the company dormant.
The company does not owe me anything and I want to do as above to avoid all the taxes due for making that money mine.
Can I do this?
The company does not owe me anything and I want to do as above to avoid all the taxes due for making that money mine.
Can I do this?
MrJuice said:
I have a limited company with some money in it. I don't trade from the company any more. I'd quite like to take about 30k out and use it for personal spending and then make the company dormant.
The company does not owe me anything and I want to do as above to avoid all the taxes due for making that money mine.
Can I do this?
If the money is as a result of profits, then it should be shareholders funds? And presumably you are a Director? If so, take it out as a dividend? And tax is 8.75% at the basic rate or 33.75%+ at the higher rates.The company does not owe me anything and I want to do as above to avoid all the taxes due for making that money mine.
Can I do this?
Alternatively, liquidate the business, and providing there are no creditors to pay and you haven’t exhausted your £1M lifetime ER allowance, tax will only be 10%.
Of course, I’m no accountant, and you should be speaking to one of those ideally.
Edited by BorkBorkBork on Sunday 19th June 16:56
There's some really bad advice here....
It's fine to borrow money from your company but there are two taxes to be aware of:
- benefit-in-kind tax for interest-free loans> £10k
-s455 tax for loans still outstanding 9 months after company year end at 33.75% - but this can be reclaimed when loan is settled
If the company has been trading recently, would the reserves be eligible for distribution as a 'capital distribution' under CGT rules at 20% (or 10% under entrepreneurs relief)? Might be worth speaking to an accountant.
It's fine to borrow money from your company but there are two taxes to be aware of:
- benefit-in-kind tax for interest-free loans> £10k
-s455 tax for loans still outstanding 9 months after company year end at 33.75% - but this can be reclaimed when loan is settled
If the company has been trading recently, would the reserves be eligible for distribution as a 'capital distribution' under CGT rules at 20% (or 10% under entrepreneurs relief)? Might be worth speaking to an accountant.
Edited by Seventy-Eight on Sunday 19th June 20:39
Seventy-Eight said:
There's some really bad advice here....
It's fine to borrow money from your company but there are two taxes to be aware of:
- benefit-in-kind tax for interest-free loans> £10k
-s455 tax for loans still outstanding 9 months after company year end at 33.75% - but this can be reclaimed when loan is settled
If the company has been trading recently, would the reserves be eligible for distribution as a 'capital distribution' under CGT rules at 20% (or 10% under entrepreneurs relief)? Might be worth speaking to an accountant.
Thanks It's fine to borrow money from your company but there are two taxes to be aware of:
- benefit-in-kind tax for interest-free loans> £10k
-s455 tax for loans still outstanding 9 months after company year end at 33.75% - but this can be reclaimed when loan is settled
If the company has been trading recently, would the reserves be eligible for distribution as a 'capital distribution' under CGT rules at 20% (or 10% under entrepreneurs relief)? Might be worth speaking to an accountant.
Edited by Seventy-Eight on Sunday 19th June 20:39
If I lent out 10k to myself and then made the company dormant, would I be breaking any rules or dodging any tax?
Seventy-Eight said:
There's some really bad advice here....
It's fine to borrow money from your company but there are two taxes to be aware of:
- benefit-in-kind tax for interest-free loans> £10k
-s455 tax for loans still outstanding 9 months after company year end at 33.75% - but this can be reclaimed when loan is settled
If the company has been trading recently, would the reserves be eligible for distribution as a 'capital distribution' under CGT rules at 20% (or 10% under entrepreneurs relief)? Might be worth speaking to an accountant.
Hes not looking to "borrow" the money and repay it though, hes looking to withdraw it from the company, then make the company dormant, thus, unless i'm mistaken, not repay it?It's fine to borrow money from your company but there are two taxes to be aware of:
- benefit-in-kind tax for interest-free loans> £10k
-s455 tax for loans still outstanding 9 months after company year end at 33.75% - but this can be reclaimed when loan is settled
If the company has been trading recently, would the reserves be eligible for distribution as a 'capital distribution' under CGT rules at 20% (or 10% under entrepreneurs relief)? Might be worth speaking to an accountant.
Edited by Seventy-Eight on Sunday 19th June 20:39
Edited by Deep Thought on Sunday 19th June 21:02
MrJuice said:
No
I will repay it later. I am not looking to do anything illegal.
My criteria are to take out up to 30k without paying any tax right now. I'm happy to pay tax later (if needed....I might pay out that money in salary later but won't be doing that for now).
Ah OK. Gotcha. I will repay it later. I am not looking to do anything illegal.
My criteria are to take out up to 30k without paying any tax right now. I'm happy to pay tax later (if needed....I might pay out that money in salary later but won't be doing that for now).
Seventy-Eight said:
There's some really bad advice here....
It's fine to borrow money from your company but there are two taxes to be aware of:
- benefit-in-kind tax for interest-free loans> £10k
-s455 tax for loans still outstanding 9 months after company year end at 33.75% - but this can be reclaimed when loan is settled
If the company has been trading recently, would the reserves be eligible for distribution as a 'capital distribution' under CGT rules at 20% (or 10% under entrepreneurs relief)? Might be worth speaking to an accountant.
Solid guidance here by Seventy-Eight. You can take a loan up to £80k(but do check my numbers here) for a period of approx a year (again, perhaps fuzzy memory so do check) before BIK applies. But you will obviously need to pay it back within the period.It's fine to borrow money from your company but there are two taxes to be aware of:
- benefit-in-kind tax for interest-free loans> £10k
-s455 tax for loans still outstanding 9 months after company year end at 33.75% - but this can be reclaimed when loan is settled
If the company has been trading recently, would the reserves be eligible for distribution as a 'capital distribution' under CGT rules at 20% (or 10% under entrepreneurs relief)? Might be worth speaking to an accountant.
Edited by Seventy-Eight on Sunday 19th June 20:39
If you want to withdraw it, you will need to take a dividend. If you can, you could change shareholding allocations weighted towards a spouse, if more tax efficient, and withdraw it with less tax implication over time.
Can't you still take a 'proper' loan for an exemption? An invariable rate (of 2%) and an invariable period would mean interest to pay but might be better off than a tax obligation if the money is being returned later (needs working out). 17.19 Section 177 of the Beneficial Loan arrangements stuff.
I'm no accountant (obviously!) but someone who loves a workaround.
I'm no accountant (obviously!) but someone who loves a workaround.
One way to avoid the Benefit in Kind charge is to have the company charge the director a commercial rate of interest for the loan.
However, the company will now have interest income which needs to be recorded in the accounts and returned to HMRC as part of the Corporation Tax return. Corporation Tax of 19% will be chargeable.
The S.455 penalty Corporation Tax charge will still be an issue. Once the S.455 tax has been paid to HMRC, it can take a very long time to get HMRC to refund the tax to the company when the loan is eventually repaid.
Loans to directors are best avoided. If the company is truly not being used, I would go down the "Striking Off" route - take out the £30,000 and declare some of it as a final dividend and the remainder as a Capital Distribution under the Capital Gains Tax Business Asset Relief rules (Entrepreneur's Relief no longer exists as such) . That will work out cheaper from a tax point of view.
If you need a company in the future, set up another one - they are very cheap to set up these days.
However, the company will now have interest income which needs to be recorded in the accounts and returned to HMRC as part of the Corporation Tax return. Corporation Tax of 19% will be chargeable.
The S.455 penalty Corporation Tax charge will still be an issue. Once the S.455 tax has been paid to HMRC, it can take a very long time to get HMRC to refund the tax to the company when the loan is eventually repaid.
Loans to directors are best avoided. If the company is truly not being used, I would go down the "Striking Off" route - take out the £30,000 and declare some of it as a final dividend and the remainder as a Capital Distribution under the Capital Gains Tax Business Asset Relief rules (Entrepreneur's Relief no longer exists as such) . That will work out cheaper from a tax point of view.
If you need a company in the future, set up another one - they are very cheap to set up these days.
Seventy-Eight said:
There's some really bad advice here....
It's fine to borrow money from your company but there are two taxes to be aware of:
- benefit-in-kind tax for interest-free loans> £10k
-s455 tax for loans still outstanding 9 months after company year end at 33.75% - but this can be reclaimed when loan is settled
If the company has been trading recently, would the reserves be eligible for distribution as a 'capital distribution' under CGT rules at 20% (or 10% under entrepreneurs relief)? Might be worth speaking to an accountant.
Where does he mention borrowing it in the op? I’d suggest my advice is sound given his op. It's fine to borrow money from your company but there are two taxes to be aware of:
- benefit-in-kind tax for interest-free loans> £10k
-s455 tax for loans still outstanding 9 months after company year end at 33.75% - but this can be reclaimed when loan is settled
If the company has been trading recently, would the reserves be eligible for distribution as a 'capital distribution' under CGT rules at 20% (or 10% under entrepreneurs relief)? Might be worth speaking to an accountant.
Edited by Seventy-Eight on Sunday 19th June 20:39
When did the company stop trading? And do you plan on carrying on the same business in the future?
Striking off with distributions of more than 25k can be a bad answer, as the distribution will be taxable as income.
A liquidation, where the amounts received are treated as capital, and subject to capital gains, and therefore potentially exempt via business asset disposal relief, is the best tax route, but might be too expensive. In such a scenario, the company could loan you the money before the liquidation, and no tax, other than a BIK will be borne by you or the company.
More facts needed.
Striking off with distributions of more than 25k can be a bad answer, as the distribution will be taxable as income.
A liquidation, where the amounts received are treated as capital, and subject to capital gains, and therefore potentially exempt via business asset disposal relief, is the best tax route, but might be too expensive. In such a scenario, the company could loan you the money before the liquidation, and no tax, other than a BIK will be borne by you or the company.
More facts needed.
Company stopped making sales at the level it had been doing in 2017. Did still make a few tiny sales of around 2% of previous turnover until about 2020. No further sales since then.
Why would a redundancy settlement be looked at as a distribution? Although the employee is my wife, she does not hold any shares.
Why would a redundancy settlement be looked at as a distribution? Although the employee is my wife, she does not hold any shares.
MrJuice said:
Why would a redundancy settlement be looked at as a distribution? Although the employee is my wife, she does not hold any shares.
Because it's fairly obvious. Company that doesn't trade starts employing someone.Why? Then it makes them redundant. Strange? Oh it's your wife. That is probably tax evasion.The easy answer (as it always is) is get your accountant to work out the most favourable way to close the company. It appears pretty simple to get a low tax rate.
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