Company Loan Payments

T.C.

One of my clients has recently taken up employment with a limited company, which I understand is run by a member of his family. My client has become a director of that company. The company is paying himabout £100 a week and the rest (approximately £250 per week) is being paid to him as a director's loan.I am not getting involved with the new company, but just wanted to know if this sounds correct. Any limited company experts out there to give me their opinion and/or share their knowledge? Thanks.

LynWest

Not an expert, but he needs to watch out because if the directors loan becomes more that £5000 in the year. then the loan can become a BIK Which this would soon reach, (assuming that it is periodically paid back out of dividend. Also if the company is liable to pay tax on the directors loan at 25% if the debt is not repaid in full 9months after the end of the companies accounting period.

HMRC my also say that the £250 per week is actually a wage since it is so regular and the same in value and therefore they may try and get PAYE paid on it. Not sure how sucessful they would be but really i'd prefer not to take the chance.

Not an expert but hope that helps x

oakley

http://www.bbc.co.uk/news/business-18533879

may be a 'legal' loophole depending where the limited co is based, however, if the loan is given with no real intention of being repaid HMRC will see it as taxable income, they should beware of paying themselves this way!

I am no expert in this though :-)

groundy

I imagine what is happening is that the £250 is not a loan but will be covered by dividends issued and therefore no problems with od loan accounts and BIKs

T.C.

Thank you. I will pass on my concerns and leave it to him.