Overdrawn director's loan account

Dottie

Could someone explain to me the implications of an overdrawn DLA.

A new client and the Company has two directors who use the company bank account like their personal account. They have been told by their previous accountant that this was not acceptable, but still carried on.

The reserves are about £28,000, but the director's account is £40,000 over drawn, so is there a tax implication under S419 ICTA 1988?

If so, is this included in the Corporation Tax Computation?

Many thanks for any advice

Dottie

deanshepherd

Yes and yes!

Ways round it? Well, check the DLA transactions since the year end and, if still within 9 months, you could get them to repay the company. If there are sufficient profits to date (plus the £28k reserves) then maybe a dividend is an option to at least minimise the S.419 liability.

Even if fully repaid, you will still need to complete the loans to participators supplementary pages of the CT600.

S.419 tax is only depository so providing you can get them to repay the loan during the current accounting period then you can reclaim it on the next CT600.

With a £40k loan you will also need to get them to pay the company interest or be assessed to a benefit in kind on the beneficial loan.

Poodle

Hi Dottie

Another thing to be careful of with overdrawn DLA's is National Insurance you must ensure that the company has in place a policy to ensure that it is not the intention of payments from an O/D DLA to be income and that the O/D will be either cleared by dividends or by the Director paying in personal fumds

Poodle

Dottie

Thanks for the advice.

I will complete the Ct600a form this year.

Can the loan be written off next year, as I can't see the directors being able to repay this in the foreseable future?

What are the implications that I need to consider if it can be written off?

Dottie