Putting Ltd Co savings in director's bank account: good plan

Monsoon
Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
Hi all

Just thought I would share my morning's findings with you.

We all know that over £5k loan is a BIK to the director. I did the following maths:

Savings account balance £10,000.

Interest rate in business reserve account 0.1% = £10 per annum/

Interest rate in Personal account 3%.

NET interest after tax £240
BIK interest @ official rate 4% = £400 (and no BIK charge)
CT paid thereon £80
Net in your pocket (assuming basic rate taxpayer and thus no charge on dividends getting the £320 back out again) £160

So, it's worth moving the money. Obviously, repay this before 9 months after the year end.

On this subject, though, does anyone know of any success in doing a board minute to hold the £10k in trust for the company, thus avoiding paying the interest on the loan to the company? If so, what happens to the tax on the interest? It's been taxed on the individual, but if it's in trust it's strictly the company's income.

Interesting (to me, anyway #geek)

Comments

  • groundy
    groundy Registered Posts: 495
    Why not have the company charge the director loan interest equivalant to the bank interest received therefore income in the company but nil gain to director as interest earned same as interest charged, could be handy for HR tax payer!
  • Newbie
    Newbie Registered Posts: 229 ? ? ?
    This may be of interest (recent newsletter I read online)

    Company Money in Personal Account
    Here’s a nice problem to have: your company holds a lot of money, but you want to leave it there for now. Perhaps you don’t want to be taxed personally if you take the money out of the company. The company may also have long-term plans for the funds, such as acquiring another business or property when a suitable target is identified.

    In the meantime the company may only be able to earn 1% interest on the money, but you could earn say 4% on the same amount in your personal deposit account. Could you hold the funds on behalf of the company (as a nominee), and place them in your deposit account to achieve the higher interest rate? It is possible, but there are several issues to deal with:

    The bank needs to be clear that the beneficial owner of the funds is the company and willing to open an account on this basis. So the account name needs to be something like: ‘A Brown as nominee for AB Ltd’.
    There needs to be trust deed or similar document signed on behalf of the company that appoints you as nominee for the company’s money to be deposited in your account.
    The board of directors of the company must be seen to have made an informed decision about this arrangement, and issue clear instructions as to the terms for depositing the funds. This should be recorded in the board minutes.
    The bank may deduct income tax from the interest paid on the deposit account, which would not be due if the account was held in the company’s name.
    The Taxman needs to be convinced the funds in your account are not a loan from the company to you as a director or shareholder of the company.

    This last condition is the most troublesome. If you don’t meet it and it is deemed the company has made a loan to you which remains outstanding nine months after the company’s year end, the company must pay tax of 25% of the value of that loan. You will also be taxed on the deemed interest payable on the loan at 4%, where the loan exceeds £5000 at any point in the tax year.
  • jamesm96
    jamesm96 Registered Posts: 523
    Newbie wrote: »
    This may be of interest (recent newsletter I read online)

    It was!
    Newbie wrote: »
    The Taxman needs to be convinced the funds in your account are not a loan from the company to you as a director or shareholder of the company.

    This last condition is the most troublesome. If you don’t meet it and it is deemed the company has made a loan to you which remains outstanding nine months after the company’s year end, the company must pay tax of 25% of the value of that loan. You will also be taxed on the deemed interest payable on the loan at 4%, where the loan exceeds £5000 at any point in the tax year.

    I'd think that the commercial justification for doing something like this speaks for itself so, especially if you've got bulletproof paperwork to back the decision up, I wouldn't have thought anyone would have too much of a problem here.
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    Thanks Newbie :)
    I agree that commercial justification would be easy to come by.

    The only bit that threw me was that the bank need to know it's held in trust. I would guess the bank wouldn't give you the standard personal interest rate if they knew it was for a business, thus negating the effectiveness of doing it.

    Where was this publication?

    Also, is there a legal justification for all those points or was that the author's opinion on best practice? i.e. can you get away without telling the bank, and just tick all the other boxes?
  • LynWest
    LynWest Registered Posts: 122 ? ? ?
    Just asked Hubby as he is a business bank manager and he say very unlikely to getting the personal tax rate with anything to do with a limit company as the bank would deem it as a business account! :(

    If it was just best practice and not a legal requirement then i think we should just not tell the bank (she says wispering so the bank manager does not hear!):thumbup1:
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