Self Assessment and Unpaid Director’s Loan

Discussion in 'Accounts & Finance' started by BusyBeeBee, May 18, 2019.

  1. BusyBeeBee

    BusyBeeBee UKBF Newcomer Free Member

    12 2
    Hi there,
    Im hoping and would be very grateful for some advice.
    I have an unpaid director’s loan; 10.6k in one year and the company paid £3.5k in corporation tax on that, and £13.5k the following year and company paid no corporation tax on that. No company accounts were submitted but a P11D form was.
    My tax code includes a tax element for the director’s loan.
    The company has ceased to trade and is dissolved. HMRC first objected to the action but a few weeks later withdrew their objection.
    My question is how do I show this essentially written off director’s loan on my next self assessment form? Is the whole lot treated as a dividend, what about the tax I have already paid through PAYE? I’m quite confused.
    Many thanks in advance.
    Posted: May 18, 2019 By: BusyBeeBee Member since: Jun 30, 2018
  2. Newchodge

    Newchodge UKBF Big Shot Free Member

    12,449 3,234
    You don't pay corporation tax on a director's loan. You pay it on company profits. Presumably accounts were submitted?

    What was on the P11D form?
    Posted: May 18, 2019 By: Newchodge Member since: Nov 8, 2012
  3. BusyBeeBee

    BusyBeeBee UKBF Newcomer Free Member

    12 2
    Hi Newchodge,

    Thanks for your reply.

    I used form CT600A when i prepared my company tax return to show the amount owed by me, the director. The company was required to pay corporation tax at 32.5% of the outstanding amount as it was not paid back within 9 months and 1 day.

    The P11D showed the additional director’s loan element for that accounting period.
    Posted: May 18, 2019 By: BusyBeeBee Member since: Jun 30, 2018
  4. SteLacca

    SteLacca UKBF Ace Free Member

    1,429 277
    Your company paid S455 tax on the O/D DL. Had the company continued, it would have received a refund when the loan was repaid.

    Since the DLA is, effectively, written off, it is now income in your hands. In the absence of any dividend declaration, it is income in the same way that wages are income, and is taxable as such.
    Posted: May 19, 2019 By: SteLacca Member since: Jun 16, 2016
  5. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    3,040 365
    Posted: May 20, 2019 By: Lisa Thomas Member since: Apr 20, 2015
  6. Si_Property_Accountant

    Si_Property_Accountant UKBF Contributor Free Member

    42 3
    What do you do when you have an overdrawn directors loan account?
    Why do directors loan accounts exist?
    Let us imagine that a property investor sets up a limited company to buy residential properties. They may have a share capital of £100 (100 X £1 shares) and loans the company £25,000 for the deposit of a property. This money can be repaid back to the director whenever they want and it will be tax-free. This is rather commons sense given that the company owes the directors money.

    However, let us imagine that the property is revalued and an additional £50,000 is released by the mortgage provider into the company bank account. The directors decide to take the money out of the bank account for personal reasons. The original loan owed to them was £25,000 and this is repaid. However, now the directors owe the company the excess £25,000 taken in the withdrawal.

    Directors loan accounts outstanding at the year end and not repaid within 9 months
    Where the company is lending you as a director money this can be very expensive. We strongly advise that you have no money outstanding to your limited company at the year-end. If you have any outstanding directors loan accounts then make sure it is paid back within nine months of the year-end.

    If there is any loan outstanding at the year end but repaid in full within 9 months there is NO tax to pay on the loan. However, if there is an outstanding amount of money owed by the directors to the company then 32.5% higher rate of tax will be applied.

    It does not matter how much money you owe to the company. The 32.5% tax charge applies on all monies outstanding,

    Download your property tax guide here, written by our property accountants
    Directors loan account greater than £10,000

    Any loans at any time which total more than £10,000 will need to be recorded on your self-assessment as a benefit in kind.

    The cost of the benefit in kind is calculated at HMRC official interest rate (circa 3% to 5%) of the total value of the loan as an annual charge. This interest charge is added to your salary from your limited company which could result in income tax for you. National insurance at the rate of 13.8% will also be applied to your for your limited company.

    This is 32.5% higher rate of tax charged is refundable once the loan is paid back however this is an additional corporation tax charge to your business in the meantime.

    How can you avoid an overdrawn directors loan account?
    In the above example, we saw that the directors were initially owed £25,000 by the company for the property deposit. However, the property was refinanced and the directors took £50,000 lump sum for personal reasons. This means that the directors owe the company the remaining £25,000.

    This may be repaid in a number of ways:

    • Taking a wage and salary at the year-end, which will be subject to the usual income tax and national insurance contributions for both the employee and employer.
    • Taking dividends out of the company. Please remember that £2,000 dividends may be taken tax-free by each shareholder. Please also note that you can only take dividends out of a company provided that it made sufficient profits.
    • Write off the loan. If you write off the loan at the year-end the written off value would be a benefit in kind. This would be subject to income tax for the director on their self-assessment. The company would also pay 13.8% on the loan value written off
    Last edited by a moderator: May 24, 2019
    Posted: May 24, 2019 By: Si_Property_Accountant Member since: May 12, 2013
  7. Newchodge

    Newchodge UKBF Big Shot Free Member

    12,449 3,234
    You don't half spout some rubbish
    Posted: May 25, 2019 By: Newchodge Member since: Nov 8, 2012
  8. SteLacca

    SteLacca UKBF Ace Free Member

    1,429 277
    Except S.455 tax is not really tax at all, it's a temporary charge, and is repayable to the company once the loan is cleared, released or written off. Don't post half a tale for the purpose of scaremongering.
    Posted: May 26, 2019 By: SteLacca Member since: Jun 16, 2016
  9. TheCyclingProgrammer

    TheCyclingProgrammer UKBF Regular Free Member

    1,082 221
    To be fair they did state that the charge is repayable in their post.
    Posted: May 26, 2019 By: TheCyclingProgrammer Member since: Jul 15, 2014
  10. Dave Bassett

    Dave Bassett UKBF Newcomer Free Member

    6 0
    If the unpaid directors loan is treated as income how is it taxed. As dividends?
    Posted: Jun 2, 2019 By: Dave Bassett Member since: Jun 1, 2019
  11. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

    4,621 770
    read the link @Lisa Thomas posted - it tells you in there
    Posted: Jun 2, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
  12. BusyBeeBee

    BusyBeeBee UKBF Newcomer Free Member

    12 2
    Thanks all, so sorry for not thanking you all sooner, I didn't get an alert to say there were further postings (must check my settings).

    OK, so I have started my SA return online and have entered the DLA amount showing on my now dissolved company's Sage package (as the company did not submit final accounts), under 'Other UK income not included on supplementary pages', is this the correct place?

    Is it OK to 'reimburse' myself (or rather reduce my DLA as a contra) for use of home as office, mobile phone, mileage, etc. up until the time of the company ceasing to trade/being dissolved? These are legitimate expenses that were incurred and are the same amounts roughly as previous years.

    Another question I have is I am still paying off a company loan of £1200 per month from my own money, and I was paying that in the time in between the company ceasing to trade and being dissolved. The loan is still in the company name but has a personal guarantee on it. However, the loan company charge £5k admin fee to transfer it from the company name to the personal guarantor so its not been something I really want to highlight, although they know the company has ceased to trade and from what I gather they are just happy to continue so long as the loan is being repaid. Is there anywhere on the SA form I need to enter this information?

    One interesting point that still has me very confused is the company did have an outstanding amount to pay HMRC. They did object to the dissolution (which I expected) and I then started a liquidation process. However, before the liquidator submitted all the information to HMRC, HMRC suddenly removed their objection less than a week before the dissolution date and it was automatically struck off as CH said it was too late to change this process. Thinking back perhaps I should have personally cleared the company loan via the DLA before the actual dissolution date and then I wouldn't have all this extra taxable income.
    Posted: Jun 9, 2019 By: BusyBeeBee Member since: Jun 30, 2018