Loans to Director’s
directors
loan accounts reflect the amount of money that the company owes to you unless it’s overdrawn and then it reflects the amount of money that you owe to the company if the company owes you money then it can be used as part of your strategy to minimize your tax liabilities you should resist the urge to get the company to pay back this money just because it owes it to you as you will see this can be used to our advantage in better ways.
Director’s Loans – How to use them to save tax
if your company is struggling however, then it is better to try and get the money owed to you paid vacuum although you need to be careful about fraudulently preferring yourself as a creditor to the detriment of other creditors in such a situation you are well advised to seek the advice of an authorized insolvency practitioner in our a video called how much dividend should you take from your company we explained that the dividends taken up to the limit of your basic rate band took advantage of lower rates of dividend tax once you exceed the basic rate band you’ll pay significantly higher rates of dividend tax these high rates of dividend tax should be avoided if you have the opportunity to do so the existence of money owed to you on your director’s loan account gives you an opportunity to do this if you want more money than what your basic rate band affords you then take the excess as withdrawals from your director’s loan account.
we would recommend that you always take the basic rate dividends first before calling upon the funds in your loan account as they availability of dividends at the cheaper rates are on a use it or lose it pay any unused part of your basic rate band cannot be carried forward, on the other hand, the amounts in your director’s loan account are limited and if you use these firsts may soon run out using this way your loan account can be looked upon as a rainy day fund to be used on the occasions when you want more out of the company then you can take within your lower rate band because of its strategic nature it is very important that you have a good awareness of just what amount of money the company owes you at any particular time the reason for this is to prevent you from going overdrawn should you go overdrawn this has adverse tax consequences firstly if any overdrawn loan the account is not made good within nine months of the company’s accounting date then additional tax at a rate of thirty two point five percent will be payable on the overdrawn amount in addition to the corporation tax that you will pay further, if the overdrawn amount exceeds ten thousand pounds at any time in a tax.
Director Loans to Nonprofits
here then this compels you to have to compute the beneficial interest and report this on a form P 11 D result in impersonal tax and class 1a national insurance being playable a DB we strongly advise clients to avoid going overdrawn on their loan accounts though in some instances tactical reasons may arise to deliberately over draw and accept the additional tax charges this however needs to be done with extreme caution as it can strip you of the protection of limited liability. if you lose control of the company for example in a liquidation where you have substantial funds on a loan account you can consider paying interest to yourself.
there is a requirement to deduct basic rate tax at source and remit this to HMRC however the amount of interest paid is tax-deductible by the company and to the extent it is covered by your personal savings allowance will be tax-free in your hands the existence of a positive balance on your directors loan account can prove extremely useful in your strategy for extracting money from your company and could play a significant part in it your strategy will need to change each year as allowances tax rates tax bans and personal circumstances and preferences change for this reason your strategy needs to always be subject to review
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