Directors often borrow from their companies and this incurs a temporary tax charge.
The rate of tax charged on loans to participators and other arrangements has been specifically linked to the dividend upper rate, which increased to 32.5% from 6 April 2016.
Section 455 CTA 2010 liabilities must be included in a company’s CT600 tax return. The S455 tax forms part of the calculation of tax payable by the company under Paragraph 8 Schedule 18 FA 1998.
The good news is that it’s a temporary tax charge and when the loan is repaid you can claim relief.
A claim to relief under Section 458 is a claim for relief against the original tax charge for the AP in which the loan was made. The time limit for the claim is four years from the end of the financial year in which the loan is repaid, released or written off. COM53120
The most common ways to clear director’s loan are:Dividends
Provided the company has distributable reserves – in other words the company has made a profit then you can declare dividends but watch out for dividend tax.Repay the Debt
It may be worth borrowing money from an external source to repay the Directors Loan, the Bed & Breakfast rules say that the loan must be repaid for more than 30 days. But interest will be less than the 32.5% temporary tax.Bonus
You could clear the loan by paying a bonus, this isn’t reliant on the company having distributable profit reserves.Key Points
If you’re claiming tax credits, you’ll be sent a renewal pack. It will tell you how to renew your tax credits.
You must renew your tax credits by 31 July 2016 if your renewal pack has a red line across the first page and it says ‘reply now’.
If you miss the deadline your tax credits payments will stop. You’ll be sent a statement and will have to pay back the tax credits you’ve been given since 6 April 2016.
Both you and your company could be better off with a Low Emission or Electric Car.Capital allowances
If you buy a new car for your business that has CO2 emissions of 75 grams or less per kilometre (g/km) driven, or is electric, you can qualify for a 100 per cent first-year capital allowance. This allows you to offset the whole cost of the investment against taxable profits in the year.Benefit in Kind
A car such as the Toyota Yaris Hybrid with emissions below 75 CO2 g/km only has 11% Benefit in Kind