Ltd Co Loan from bank transferred to Directors

Allie

One of my clients own a pub run as a Ltd Company & are equal shareholder directors. Last year they took out a loan of nearly £25k from the bank to purchase another pub which they run as a partnership. The bank paid the money into the Ltd Co bank account and it was then transferred to the Partnership bank account the same day. The loan is in the name of the Ltd Co but the repayments are paid by the partnership pub.

In preparing the Ltd Co’s annual accounts should this loan be shown as a creditor to the bank and a debtor on the Directors’ loan account? If this is the case I presume that 25% tax is payable under S419 (now 455) and it will attract a benefit in kind. Just wondering if I have missed anything or if there is another way of dealing with this?


Any help & advice would be very much appreciated

Monsoon

I think you've got it. If the Ltd Co is named on the loan, it gets treated exactly as you would think.

The directors have taken the money out and therefore if their DLAs are overdrawn, treat as you normally would an overdrawn DLA (which may indeed be s419/455 tax and BIK on beneficial loans)

The only other thing that springs to mind is that the interest on the loan may not be allowable for CT as it wasn't for trading purposes. Who is making the repayments? If it's the Ltd co, then I don't think the interest is allowable. If the directors are making the repayments, then if you can set up a loan arrangement I think you can pass the cost of the interest on to the partnership via the Ltd Co charging the partners the amount of interest it is paying (and thus avoiding the beneficial loan BIK also).

You'll also have to disclose whatever the state of play is on the transactions with directors notes.

Good luck with this one!!!!!!

Allie

Many thanks for your advice. The interest is being paid by the Directors and no expense whatsoever goes through the Ltd Co P&L so I should be ok to put the interest through their Partnership accounts