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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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what is the basis of assessment for interest credited to a

Resolved Question:

what is the basis of assessment for interest credited to a loan account?
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

Are you referring to interest credited to a director's loan account where the company owes the director money?
Customer: replied 3 years ago.

Yes

Expert:  TonyTax replied 3 years ago.
Thanks.

Leave this with me while I draft my answer.
Customer: replied 3 years ago.

ok

Expert:  TonyTax replied 3 years ago.

Hi again.

If interest is credited to a director's loan account, the company must deduct tax at the basic rate of income tax (20%) as a bank would and account for that tax through it's annual CT600 corporation Tax return. Take a look here for more information.

As far as the director is concerned, the interest will need to be disclosed in a self-assessment tax return for the tax year in which the interest is credited and is available for the director to draw if they complete personal tax returns. If the director does not complete tax returns but is a higher rate taxpayer, then they will need to register for self-assessment or call the tax office and ask for a form P810 annual review form to complete. Strictly, company directors should complete tax returns but HMRC seemed to have relaxed this rule in recent years despite what it says on its website. Take a look here for more information on tax return completion criteria and here for information on the tax point for interest.

I hope this helps but let me know if you have any further questions.

Customer: replied 3 years ago.

If the interest is accrued/credited to the account when is it available to the director - when the accounts are approved?

Expert:  TonyTax replied 3 years ago.
When the book entry is made for the interest and the director can technically withdraw it determines the tax point. If the interest is credited six months before the end of the company's accounting period, for example, that is the tax point for the director. The tax point for the interest is when it is available for drawing.

If the interest is not credited until the accounts have been approved, then the date of approval can be used as the tax point. So long as you are consistent in your approach, the tax office won't have nay problems. If, for instance, the approval of the accounts is deliberately delayed to push the interest into the next tax year, then HMRC may have an issue.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15886
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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