UK Tax Question for Small Business

spurschic1@yahoo.com

Hi,

I have had a query from a friend in the UK but I live in the Isle of Man with a difference tax system. Can you help with her query?

She has spoken to HMRC and they have advised that she will pay 20% tax on the company profit and also 20% personal tax on the monies (loan) she has received from her business. The only way she won't pay personal tax is if she pays the loan back. She wants to know can she pay the loan back (after the year end) but show it as paid in her financial statements and therefore not pay any tax?

Thanks in advance
Vicky :001_smile:

jamesm96

Hi Vicky,

As long as your friend 'pays the loan back' within 9 months of the company's year-end, the company doesn't need to pay the charge on the director's loan. As an aside, the charge (called a s.455 charge) is 25% of the outstanding balance, not 20%.

I put 'pay the loan back' in inverted commas because she doesn't necessarily need to put the cash back into the business. She could, for example, declare a dividend in the company which she doesn't draw and, instead, offsets the loan. Or it might be that she charges the company for use of home as office, or business mileage, but doesn't take the cash, thereby offsetting the loan again. There's a few things like that which would work.

Mike.

spurschic1@yahoo.com

Thanks for your help Mike, so if she takes a dividend to offset the loan does she not pay tax on the dividend?

Vicky

jamesm96

spurschic1@yahoo.com wrote: »

Thanks for your help Mike, so if she takes a dividend to offset the loan does she not pay tax on the dividend?

Vicky

As long as she's not a high-rate taxpayer (and as long as the dividend won't take her total income over the high-rate threshold), no.

spurschic1@yahoo.com

Thanks for your help Mike, really appreciate it!