Directors loan

[Getting by]

Directors loan account,

Hi,
I'm trying to build a company from scratch and I'm trying to avoid taking anything out of it until it's completely financially self sufficient. But as the 1st year end is approaching I was wondering what the tax implications of taking a directors loan out would be, if I took say £7000 directors loan just before the year ends and paid it back say 2 weeks later would this remove any tax liabilities on thr loan with regards to the 1st years accounts? And after paying it back would it causes any tax liabilities in thr second years accounts?

 

[MyAccountantOnline]

Directors loan account,

Hi,
I'm trying to build a company from scratch and I'm trying to avoid taking anything out of it until it's completely financially self sufficient. But as the 1st year end is approaching I was wondering what the tax implications of taking a directors loan out would be, if I took say £7000 directors loan just before the year ends and paid it back say 2 weeks later would this remove any tax liabilities on thr loan with regards to the 1st years accounts? And after paying it back would it causes any tax liabilities in thr second years accounts?

If that's the only loan it doesn't create a tax charge for the company. You make a claim for repayment on the Corporation tax return so the net effect is zero.

HMRC have a good summary here https://www.gov.uk/directors-loans/you-owe-your-company-money

Is it definitely not beneficial for you to take a salary and or dividends from the company?

 

[Lisa Thomas]

Have you taken advice from accountants that this is the best way for you to draw income? Why do you need to take it out if you can afford to pay it back 2 weeks later?

 

[Bobbo]

Lisa raises a good question, @Getting by what do you think you would be achieving by withdrawing this sum from the company as a loan just before the year end and repaying two weeks later (which I presume would be just after the year end)?

 

[Tables Force]

If that's the only loan it doesn't create a tax charge for the company. You make a claim for repayment on the Corporation tax return so the net effect is zero.

HMRC have a good summary here www.gov.uk/directors-loans/you-owe-your-company-money

Is it definitely not beneficial for you to take a salary and or dividends from the company?

I read the OP as trying to reduce company profit by taking out a loan before year end.


And therefore the question about repayment causing tax liabilities in the next year (as it would then be treated as income)

 

[Daybooks]

There are tax implications on almost everything you do and also tax implications from refraining from certain actions. Taxes may also interact with each other and therefore what might be beneficial for a company might not be beneficial for an individual. However where the individual is the sole owner of the business there can be benefits in arranging the tax affairs to minimise the overall tax burden on both.

If for example the company made £5k taxable profit it would pay corporation tax on it. If you took an additional salary to reduce the taxable profit then there would be less corporation tax to pay but there “may” be employer national insurance, employee national insurance and PAYE all of which affect either the company position or the individual’s take home pay. Paying the corporation tax and taking a dividend may be advantageous.

Taking a loan isn’t going to reduce profit but may give rise to a S455 charge. I say “may” because you might not have thought it relevant to mention the other £x loan taken out earlier. If you have other income including savings income then things could change.

You are right in looking to understand this before the year end so that you can make informed decisions now; re-writing history is not allowed. Please consider engaging an accountant who can assist you with all these issues as generalisation can be a dangerous thing.

 

[Newchodge]

Directors loan account,

Hi,
I'm trying to build a company from scratch and I'm trying to avoid taking anything out of it until it's completely financially self sufficient. But as the 1st year end is approaching I was wondering what the tax implications of taking a directors loan out would be, if I took say £7000 directors loan just before the year ends and paid it back say 2 weeks later would this remove any tax liabilities on thr loan with regards to the 1st years accounts? And after paying it back would it causes any tax liabilities in thr second years accounts?

The company loaning the director some money has no effect on the company profit.

 

[DontAsk]

I don't think you understand what think you are trying to achieve by taking a loan and paying it back immediately.

Talk to your accountant.

 

[Elliot Green]

You should speak to your accountant because the transaction suggested appears a touch odd on the face of it.