Director's Loan Tax

[martingrey]

I'm trying to figure out how director's loan is taxed if overdrawn.

I have taken £3k loan in 2016/17 and got taxed 25% as I didn't repay the loan within 9 months. In fact, the loan has not been repaid yet and I got taxed again in 2017/18 only this time 32.5% as the tax rate was increased. Now I'm dealing with 2018/19 and wondering whether it will be another 32.5% extra tax. I thought you only pay the tax only once and get it back once the loan is repaid.

Anybody can please confirm that HMRC will slap you with extra tax every year until the loan is repaid?

Many thanks.

 

[TheCyclingProgrammer]

s455 tax is due on any loan *advances* made within a financial year if the balance is overdue 9 months and one day after the end of the financial year.

So if you borrowed £3000 in year one and didn't repay it in time, you'd be liable to pay tax on that £3000 on your next corporation tax bill.

If the £3000 remains overdue a year later but you have not had any further advances you will have nothing more to pay. If you've borrowed another £1000 and the balance is £4000 9 months and 1 day after the end of year 2, you would pay a further s455 charge on the extra £1000.

Once the loan has been repaid in full you will be able to have any s455 charges repaid to you 9 months and 1 day after the end of the financial year in which the loan was repaid in full.

If you're messing around with director's loans, please also bear in mind that interest-free loans over £10k will incur a BIK charge too.

 

[martingrey]

s455 tax is due on any loan *advances* made within a financial year if the balance is overdue 9 months and one day after the end of the financial year.

So if you borrowed £3000 in year one and didn't repay it in time, you'd be liable to pay tax on that £3000 on your next corporation tax bill.

If the £3000 remains overdue a year later but you have not had any further advances you will have nothing more to pay. If you've borrowed another £1000 and the balance is £4000 9 months and 1 day after the end of year 2, you would pay a further s455 charge on the extra £1000.

Once the loan has been repaid in full you will be able to have any s455 charges repaid to you 9 months and 1 day after the end of the financial year in which the loan was repaid in full.

If you're messing around with director's loans, please also bear in mind that interest-free loans over £10k will incur a BIK charge too.

Thank you so much for this. When I called HMRC they didn't know and told me they are nor financial advisers! Can you believe this.

Well based on what you said, it must have been my fault as I probably submitted the amount twice. Can the tax be amended? Or should I just claim it back using CT600A?

Many thanks.

 

[SteveHa]

For clarity, there is no such thing as "director's loan tax". S455 is a charge on loans to participators (shareholders) and not directors. Whilst directors are commonly also shareholders, that isn't necessarily the case.

 

[MyAccountantOnline]

.... When I called HMRC they didn't know and told me they are nor financial advisers! Can you believe this.

....

In a word 'yes'

..

Well based on what you said, it must have been my fault as I probably submitted the amount twice. Can the tax be amended? Or should I just claim it back using CT600A?

...

Yes you can submit an amended Corporation tax return if the original was incorrect.

 

[martingrey]

Yes you can submit an amended Corporation tax return if the original was incorrect.

Thanks for this. I can see there is an option to do this via HMRC website. Will do that.

Thank you so much for all the help in here. I will be looking for an accountant soon, will definitely come back.