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bigduckontax, Accountant
Category: Tax
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Would an advance against a bonus to a company director be subject

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Would an advance against a bonus to a company director be subject to PAYE and NIC? The director is a beneficiary of a family trust that owns a majority shareholding in the company.
Hello, I'm Keith and happy to help you with your question.
The advance would, in my opinion, be a loan to a director and loans are in general outside the scope of UK taxation. Be very careful of these. Loans to directors must be cleared within ten months of the final annual accounts date or horrendous tax charges kick in.
Otherwise, of course, if cleared quickly by means of the bonus, then the payment of the bonus will be subject to tax and NI in the normal way and as it is to a director it must be paid under PAYE arrangements. A loan to a director will still exist until the individual pays off the tax and NI due as he will have received in gross when it should be net.
I do hope I have helped you with your question.
Customer: replied 3 years ago.
Thanks Keith. Presumably if he owned the shares directly then tax would be immediately applicable?
It would only be applicable in my opinion once the advance turned into an actual bonus. Presumably the time interval would be shorter rather than longer.
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Customer: replied 3 years ago.
Ah ok, I was thinking if he owned directly it would be regarded as a 'distribution' under the closed company rules.
I think you are referring to a close company!
Practical Law advises:
'The tax charge is payable by the company, and applies in relation to a loan or advance that remains outstanding after the end of the period of 9 months following the end of the accounting period of the company in which the loan or advance was made. The tax charge is equal to 25% of the amount of the loan or advance outstanding at that date.
If a loan or advance is written off by the company or repaid by the recipient, the company is entitled to claim relief from the tax charge for the amount written off or repaid.'
You will see that a Corporation Tax position, as opposed to personal income tax kicks in, but if the loan is cleared relatively quickly it is, for the company, in tax terms a lemon.
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