Director loans

[MandK]

Hi all

I’m new here and I’m hoping that I can get some good advice regarding a Director Loan account question.

We have £80K invested in our Limited company that buys and lets houses. We’ve sold a house and thought we could use the proceeds to partially recoup our investment before corporation tax. Our accountant says no, the company has to pay the corporation tax first before repaying our director loans. If the company owed ABC plumbers £1000, that would be settled before calculating profits. Why is it any different with the director loan account, if the wants their money that is owed?

Well done if you read this far. I hope I explained the situation clearly.

Thanks

Matt

 

[MandK]

Should read ‘if the director wants their money that is owed’.

 

[Porky]

I’m sure one of the accountants here will comment but whilst I completely agree with you and feel your pain on this one, it does look like they are right and the chargeable gain comes first:-

Corporation Tax when you sell business assets

Paying Corporation Tax when your limited company sells an asset for more than it paid - includes chargeable gains, intangible assets, working out inflation

www.gov.uk

In effect your DLA is a loan you gave to a limited company, the fact the company used that money to buy a property and sell it as part of their activities for a profit is a different transaction to yours. The CGT is specific to that transaction.

We can of course debate all day long if that’s fair or not but can’t see it changing anything.

But I would add, you are talking here about a tax on the gain element. You can still have your loan repaid if the company has the funds to repay it so you are not losing anything, you just understandably don’t like seeing a big chunk of the profit being given away to HMG - I get it, just how it is.

Good luck to you anyhow

 

[UK Contractor Accountant]

Directors can take back loan money at any time unless a signed loan agreement is in place detailing repayment terms.

You don't have to wait until the ctax has been settled but will need to ensure the company retains sufficient cash reserves to pay it when due.

 

[Scalloway]

If the company owed ABC plumbers £1000, that would be settled before calculating profits.

That is an expense that will be set against Corporation Tax regardless of whether or not it is paid at the time.

Your company would not have paid Corporation Tax on the money you pay in as a loan so it it is not a deduction when it is repaid.

 

[MyAccountantOnline]

Hi all

I’m new here and I’m hoping that I can get some good advice regarding a Director Loan account question.

We have £80K invested in our Limited company that buys and lets houses. We’ve sold a house and thought we could use the proceeds to partially recoup our investment before corporation tax. Our accountant says no, the company has to pay the corporation tax first before repaying our director loans. If the company owed ABC plumbers £1000, that would be settled before calculating profits. Why is it any different with the director loan account, if the wants their money that is owed?

Well done if you read this far. I hope I explained the situation clearly.

Thanks

Matt

The tax your company has to pay is based on taxable income less allowable expenses. In your example when the company incurred (not necessarily paid) the £1,000 costs for the plumber (and I'm assuming it's an allowable expense) the profit will have been reduced and so would the Corporation tax.

When a director lends money to a company it's not taxable income and when it repays the company it's not an allowable expense - it doesn't affect the Corporation tax the company has to pay. Although if the director owes the company there may be a tax charge due on the loan.

I suspect your accountant wants you to ensure your company has sufficient cash funds to pay the Corporation tax before repaying your loan but do ask them to clarify this and explain why they've advised you as they did.

 

[Lisa Thomas]

If the company is insolvent, this transaction would amount to an illegal preference, and any insolvency practitioners appointed will pursue you for repayment in due course.