In a recent Tax Tribunal case the judge agreed with HM Revenue & Customs (HMRC) that a detailed breakdown of directors loan account transactions is required, including dates.
The significance is that, where the loan account is overdrawn (debit balance), there may be a possible P11d benefit on the director and also a tax charge on the company. A taxable benefit in kind would arise where the loan exceeds £10,000 and the interest paid is less than the HMRC official rate, currently 2.5 per cent.
In addition, if the director is also a shareholder of a close company, there is a 32.5 per cent tax charge payable by the company making the loan where the loan is still outstanding 9 months after the end of the accounting period.
Thus, you can see why HMRC may require a detailed analysis of transactions between the director and the company.
Note that, where the loan is repaid to the company and a similar amount withdrawn within a 30 day period, the tax legislation matches the repayment with the new “loan” and consequently the original loan would still be outstanding.
Further information on this topic or to discuss how we can help you effectively structure your business for tax and save you money, contact your usual Beavis Morgan Partner.