Director loans, dividends and interest

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    Director loans, dividends and interest

    Hi,

    After reading many sources of information regarding dividends and director loans, I have few questions the bother me, hoping that someone can help me clear them up. Please bear with me as I am a new company director with no experience at all.

    Let's say that I have set up a new SPV, where I am the only director and transfer to it account £100k.

    1. How should the transfer be recorded as a loan? Should I make minute of the director meeting (only me) and note that the company owns me money in the company accounts? Where should I keep this miniute or should I forward it to HMRC? Is there a specific form that needs to filled?

    2. Dividend vs Loan interest

    I would like to understand the logic behind posts I read regarding dividends and loan interest. All of the accountants blogs I read explain that there is no difference between the two, and that loan interest only produce more paper work. However, my logic say that dividends are paid after corporation tax, which is 19%, and are not considered as business expense. When taking dividends we need to pay 7.5% on top if we take more then £2,000 (2018, basic tax payer). This will make total tax of 26.5%.

    However, if we take interest on a the loan mentioned above, we only pay 20% (or 19%?) to HMRC, and it's considered as a business expense. Which means we need to pay less corporation tax on profit. Is this analysis correct or am I missing something? As I understood, there is no additional tax to pay for basic rate tax payers on interest paid from a director loan to a company.

    3. Is it possible to withdrew any amount between £0-£100,000 and write it off as the company returned part of the director loan? Can I withdrew £5,000 every year and write it down as a part of the loan the company returning to me? Will this have any tax implications? Would I need to pay income tax on this?

    Thanks in advance for any thoughts you have on these issues. Have a great weekend.

    #2
    Your company will be required to submit annual accounts to Companies House and a company tax return to hmrc. You should visit 2 or 3 accountant shops / bookkeeping service shops and ask them to quote you a fee for preparing the annual account and submitting the return to companies house and at same time ask your questions.

    If you offer a £100K loan to the company , you should put the offer in writing including the loan period , the interest rate and frequency of payment ( monthly, quarterly,etc ) you want . The you as Chairman and sole director must prepare the Minutes of Meeting to accept the terms of loan. Then you keep them with other company records and hand the lot to your accountant at end of year to prepare the company accounts and submit within 9 months from end of financial year. The date will be posted on the Company records at Companies House.

    Comment


      #3
      As far as I can see the interest on the loan is a business expense (and allowable for corporation tax) but is income for the lender, and taxed accordingly - although there is an allowance (which I think is £1000 for a basic rate tax payer).
      If the principle of the loan is repaid, that isn't income for the lender or an expense for the company - the company's balance sheet should reflect the decrease in asset value.
      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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