Directors Loan

[Jam1997]

Hello I have a question about directors loan. I'm going through insolvency and trying to find the funds to hire a IP but in the mean time I have a question.

I worked as an IT Contractor through my own Ltd company and my accounts are overdrawn but I don't fully understand the directors loan. Could someone answer this hypothetical to give me some clarity. I don't know the full numbers so I'm just making them up.

Say over a year I invoiced 50k for my time. That should be split between Corp Tax, VAT and then I would take out dividends. Say I was allowed 8k for dividends and 10k should have been for CT and 10k for VAT.

If I withdrew the full amount how much would count as a directors loan. Would it be the full 42k after my dividends? Or would it 22k as part of the money was meant to be VAT and Corp Tax?

These sums won't add up but if someone could advise it would be appreciated. Thanks

 

[UK Contractor Accountant]

Your overdrawn DLA will basically be the outstanding taxes owed to HMRC when you stopped trading.

 

[UK Contractor Accountant]

Have you secured a new income stream going forward? PAYE position or new company set up.

Need to get the position on repayment of your DLA in writing from an IP before you formally apoint them.

 

[Jam1997]

I have switched to PAYE.

So basically everything withdrawn from the account (aside from Dividends) is DLA? All the accumulated Corp Tax and VAT etc?

 

[Chris Ashdown]

So basically you stole the VAT as it was not your money but the governments

 

[Jam1997]

So basically you stole the VAT as it was not your money but the governments

Thanks for you input. Now that you have had your moment i would prefer to keep this thread on topic. I am dealing with my situation and looking for an answer to a specific question. If you are not able to answer then I dont know why you felt the need to contribute.

 

[UK Contractor Accountant]

How much taxes are owed as that will determine what sort of deal you can negotiate
with the IP.

Asset position such as equity in house may also be a factor.

 

[Lisa Thomas]

If the Company was insolvent at thetime you drew the dividends they may well be illegal.

I agree you ensure you know how much the DLA is before instructing an IP as UK Accountant has suggested.

 

[Jam1997]

How much taxes are owed as that will determine what sort of deal you can negotiate
with the IP.

Asset position such as equity in house may also be a factor.

I am not sure yet but it could be in the region of 50-80k. I have no assets, no car, no mortgage, no savings. Just my PAYE.

 

[Jam1997]

If the Company was insolvent at thetime you drew the dividends they may well be illegal.

I agree you ensure you know how much the DLA is before instructing an IP as UK Accountant has suggested.

What counts as the company being insolvent? I havent filed anything yet, this years accounts have not been filed (not due for a couple months) and I havent had any wind up petitions yet. I plan to follow the spongebob plan this weekend and if that fails hopefully I will have saved enough to appoint an IP.

 

[STDFR33]

What counts as the company being insolvent? I havent filed anything yet, this years accounts have not been filed (not due for a couple months) and I havent had any wind up petitions yet. I plan to follow the spongebob plan this weekend and if that fails hopefully I will have saved enough to appoint an IP.

The Spongebob plan is not relevant to your situation.

The SB plan is for a company with no assets.

 

[Mr D]

I am not sure yet but it could be in the region of 50-80k. I have no assets, no car, no mortgage, no savings. Just my PAYE.

Ok so the company has an asset then, the DLA.

With higher amounts HMRC are more likely to look at winding the company up. After considerable time chasing the company for the debt.

To add to the problem a DLA is paid back or entered into your personal tax return as untaxed income, generating a personal tax liability.

 

[Gavin Bates]

Hi

As highlighted above it is likely that the sum owed to HMRC is in effect the level of the directors' loan account.

However, given your later comments that may be irrelevant because if no assets/surplus income then you can't afford to repay it whether it is £10k or £110k?

Yes, you can agree on a deal with an IP as long as it is a commercial one.

The other point to mention even if you do agree a deal then HMRC may treat the balance as untaxed income and tax you personally.

Regards

Gavin

 

[Lisa Thomas]

What counts as the company being insolvent? I havent filed anything yet, this years accounts have not been filed (not due for a couple months) and I havent had any wind up petitions yet. I plan to follow the spongebob plan this weekend and if that fails hopefully I will have saved enough to appoint an IP.

http://www.legislation.gov.uk/ukpga/1986/45/section/123?timeline=true

 

[Simon Green]

Hello Jamy1997:
Basically and fundamentally:
If the DLA is overdrawn, irrespective of whether or not the said company is insolvent then the director(s) must declare on their own personal self-assessment tax return for the relevant year!
Why? Well, because any amount of income received by the director(s) is considered by HMRC as income not taxed at source.
Insolvency issues and the current situation re a company are simply red herrings!!!
Any amount of overdrawn DLA is income which has not been taxed at source and hence is declared within self-Assessment by any person who is identified as a director of the company.

 

[STDFR33]

Hello Jamy1997:
Basically and fundamentally:
If the DLA is overdrawn, irrespective of whether or not the said company is insolvent then the director(s) must declare on their own personal self-assessment tax return for the relevant year!
Why? Well, because any amount of income received by the director(s) is considered by HMRC as income not taxed at source.
Insolvency issues and the current situation re a company are simply red herrings!!!
Any amount of overdrawn DLA is income which has not been taxed at source and hence is declared within self-Assessment by any person who is identified as a director of the company.

B0llocks.

 

[Simon Green]

It’s important that Jamy1997 and all in not too dissimilar situation may find themselves in as directors of ltd companies have a correct grasp of the facts:
I myself received consistently clear information, knowledge and advise from a variety of different sources re an overdrawn DLA;
This is income which has not been taxed at source as understood by HMRC and thus irrespective of insolvencies and lack of accountancy activities that may have been the case whilst a ltd company has been trading in real time, the income received by any director from the overdrawn DLA is to be declared within personal self-Assessment for any relevant tax year!
Furthermore - the ltd company can be dissolved and corporation tax and vat debt have gone with that company but for the purposes of personal self assessment income tax, not the tax liability which relates to the overdrawn DLA.

 

[Noel O'Hare]

With respect to using hypothetical figures is of no use as it does not give the full context of your position. Secure or get management figures and from there you can clearly determine your position.