tax on director's loan

[mbsc]

Hi ,there,Could you please advise me on the following scenario , lets say if my directors loan is 100 000 in debit and not repaid in the next nine months and the company need to pay 25% tax on the borrowed amount and it is added to corp tax 25 k but it is not debited from the company P&L (reserves) because it is owned by the director,is that correct? What is the double entry ? is it excluded completely from the company accounts.
The following year I have left 75k+new borrowed 10000=85 k in my directors loan account,does the company pay tax on the new borrowed money 10000 (25%) or on the whole lot 85k? in the following year
Finally , the payment of the tax 25 k is not paid by directors but by the partner then what would be the double entry in the Company TB?
many thanks

 

[Robert Pearce]

It's the company that owes the £25,000 tax and this will be declared on the company's corporation tax return. In the accounts the normal double entry (DR Corporation tax charge, CR Corporation tax liability) will be used for the overall tax liability.

At the end of the second year, using your figures, you say that £25,000 of the £100,000 would have been repaid (presumably more than nine months after the end of the first year) and so the company would be due a refund of £6,250 (£25,000 x 25%). The additional £10,000 borrowing would lead to the company owing corporation tax of £2,500, assuming that the £10,000 was not repaid within nine months of the end of the second year. It is the movement in the overdrawn loan account that is important - the company doesn't get taxed again on the full overdrawn amount.

 

[MrAnchovy]

Paying tax on a directors loan is a very expensive way of extracting profit from a company. See an accountant.

 

[GaryMc]

It's the company that owes the £25,000 tax and this will be declared on the company's corporation tax return. In the accounts the normal double entry (DR Corporation tax charge, CR Corporation tax liability) will be used for the overall tax liability.

Now there is a debate! Or should it be DR CT Debtor and CR CT Creditor?

In 99% of cases the company will get the money back so should it hit the P&L?

 

[David Griffiths]

Now there is a debate! Or should it be DR CT Debtor and CR CT Creditor?

In 99% of cases the company will get the money back so should it hit the P&L?

I'm with you on that one - we always show it as a debtor on the grounds that it is recoverable. Others put it through as a CT charge to P&L

 

[MrAnchovy]

I'm with you on that one - we always show it as a debtor on the grounds that it is recoverable.

My view is that it is a contingent asset (it only becomes recoverable following future actions of the company and the director), although I suppose you could put in place an indemnity from the director.

 

[Tom McClelland]

Paying tax on a directors loan is a very expensive way of extracting profit from a company. See an accountant.

I'm pondering the situation where it is likely that the director-owned company would be sold within a few years (attracting a mere 10% tax at that point), but you'd like to spend some of the ongoing profits personally now. In that situation might the director's loan make sense rather than divis charged at 32.5%, with the intention of paying the money back out of the eventual sale proceeeds to unwind the loan tax.

 

[David Griffiths]

My view is that it is a contingent asset (it only becomes recoverable following future actions of the company and the director), although I suppose you could put in place an indemnity from the director.

My view is that if you show the director's loan as an asset, then you show the s419 tax (yes, I know, that's the old number!) as an asset. I don't see how you can show one as recoverable without the other.