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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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There, I was wondering what the rules are regarding short-term

Customer Question

Hi there, I was wondering what the rules are regarding short-term loans made by a UK private limited company (LTD) to their director if the full amount is repaid before the end of the accounting period?
More specifically I would need to know whether interest is due on such loans, also what is the maximum amount if approved by all shareholders, are there any tax implications and would the director need to declare anything on his or her self-assessment tax return if it is over £10,000?
Importantly, again, my query is based on the assumption that the director's loan account is not overdrawn at the end of the accounting period as the entire short-term loan is repaid before the end of the accounting period.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. The page here shows the circumstances where loans to employees or directors need not be reported to HMRC as far as personal tax is concerned. I am not aware of a maximum amount that can be loaned. Where the loan is over £10,000 at any point during the tax year, a taxable benefit may arise (depedent on whether interest is paid) which needs to be reported in a P11D and the directors personal taz return. As far as an overdrawn loan account is concerned, provided a loan is repaid to the company within the accounting period during which it was taken out or by the date that the corporation tax for that accounting period is due for payment, (nine months and one day after the end of the accounting period) then there are no tax implications for the company. Any part of the loan not repaid by the date that the corporation tax is due will be subject to a Section 455 tax charge on the company at 25%. Where such a liability arises on an overdrawn balance which arises after 5 April 2016, the rate is 32.5%. The Section 455 tax can be reclaimed as the loan is repaid. Take a look here and here for information on overdrawn directors loan accounts. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Hello,
Many thanks for your reply.
You say "Where the loan is over £10,000 at any point during the tax year, a taxable benefit may arise (depedent on whether interest is paid) which needs to be reported in a P11D and the directors personal taz return."
Can you please re-confirm that this is the case even if the loan is repaid within the accounting period. It is not clear from all I have read online whether this relates to loans that are repaid within 9 months and one day after the end of the accounting period, or, if it relates also to loans that have been repaid within the accounting period.
Furthermore, assuming that interest is paid to the company on a director's loan that is over £10,000 but repaid within the accounting period, what would be the director's obligations? Please could you reinstate, just to be very clear? Many thanks.
Expert:  TonyTax replied 1 year ago.
There is a difference between the tax treatment as far as income tax and corporation tax is concerned. A taxable employment benefit can arise if the loan is outstanding for just a few days depending on the size of the loan and the interest paid by the employee, if any. The employer should work out whether there is a taxable benefit. If there is a benefit it is reported in a P11D and the director discloses the benefit in his own tax return. Wherther the loan is repaid by the corporation tax payment date is irrelevant. The nine month and 1 day rules determines whether a Section 455 charge arises.
Customer: replied 1 year ago.
Ok, many thanks for your quick reply.Assuming the company's financial year is from 1st July to 30th June. On 1st September the director takes out a loan of £20,000 and repays it on 1st of March (all within the company's financial year). What are his or her obligations specifically?
Expert:  TonyTax replied 1 year ago.
He may have a taxable benefit to report in his tax return for the tax year during which the loan existed. The employer needs to work out whether there is a taxable benefit and report that in a P11D. That information is then used by the director when he completes his personal tax return. Take a look at the notes here for more information. As the loan was taken out and repaid in the same accounting period there is no need to report the loan to HMRC via the corporation tax return.
Customer: replied 1 year ago.
Thank you very much,
How does the employer (which essentially is the director himself) work out if there is a taxable benefit? Assuming the director pays interest on the loan to the company at £3%, will the employer still need to fill in a P11D?
Expert:  TonyTax replied 1 year ago.
The official rate of interest can be found here. It is 3% for 2015/16. The P11D is here. See section H. As the loan was over £10,000 it needs to be reported. Use the worksheet here to calculate any benefit. As you paid 3% interest, there should be no benefit.
Customer: replied 1 year ago.
Great, many thanks,
It is all regarding a possible loan for 2016/17, depending on how complex the reporting duties would be but I believe the interest rate is the same at 3%.
One more thing, the director would earn less than £8,500 but would take out an estimated £12,500 in dividends. Would we still need to fill in the P11D and report the short-term loan on the director's personal tax return?
Expert:  TonyTax replied 1 year ago.
As he is a director, the £8,500 level does not apply so any benefit needs to reported.
Customer: replied 1 year ago.
And that means we would need to fill in both the P11D and also report everything on the director's personal tax return, correct?Many thanks for clarifying
Expert:  TonyTax replied 1 year ago.
You would need to fill in a P11D. If there is no benefit to report, there is no entry to be made in the personal tax return.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Excellent, this was very helpful will mark the 5 stars now.
Customer: replied 1 year ago.
(Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Expert:  TonyTax replied 1 year ago.
Can you let me have your phone number please.
Expert:  TonyTax replied 1 year ago.
Thanks. I will call in about 10 minutes.
Customer: replied 1 year ago.
ok
Expert:  TonyTax replied 1 year ago.
Thanks.
Customer: replied 1 year ago.
Hi Tony,Please could you send me the link to a P11D(b) that I can print and use to report that there is nothing to report.
I'm somehow not able to find a PDF online.Many thanks.
Expert:  TonyTax replied 1 year ago.
Look under "How to report" here for the forms: https://www.gov.uk/employer-reporting-expenses-benefits/reporting-and-paying
Customer: replied 1 year ago.
Thanks, ***** ***** this too but when you follow the link it says, 'this form is designed to be filled in on screen'. Seems to be no blank, printable PDF available then I guess.
Also it says 'Use form P11D(b) to report Class 1A National Insurance contributions due on expenses and benefits, and to declare you have sent forms P11D to HMRC.'
I hope you don't mind me asking but are you sure, I can use this form to declare that there is nothing to declare as discussed? Alternatively, it might perhaps be easier to proceed as originally planned and just complete the usual P11D with the worksheet calculations showing that there is no benefit/ zero cash equivalent?
Expert:  TonyTax replied 1 year ago.
The taxt before the hyperlink said that the forms could be downloaded, filled in, printed and sent to the tax office. You can also signal in your tax year ended PAYE Real Time Information declaration that there is no taxable benefit and negate the need for a P11D(b). I'd complete the sheets just to satisfy myself that there was no taxable benefit.
Customer: replied 1 year ago.
Excellent, many thanks Tony - won't forget your rating.
Expert:  TonyTax replied 1 year ago.
Thanks.

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