If you choose to take money out of the business in a way that isn’t accounted for by one of these options, then it will be recorded through a director’s loan account (DLA).

Essentially, you are borrowing money from your own company.

While this can be a simple way of accessing high levels of capital when you need it, there are tax implications which you’ll need to consider.

Failing to do so could result in major penalties, as in the recent case of HM Revenue & Customs (HMRC) and David Kingsmill Plumpton, Director of Botleigh Grange Hotel, Southampton.

Although HMRC was forced to reduce the £90,000 penalty, Mr Plumpton still faced a £200,000 bill and £30,000 fine for improperly filling out Income Tax Self-Assessment (ITSA) when he received the funds.

So, how do you avoid getting in trouble with HMRC? Let’s investigate.

Income Tax

You generally don’t have to pay Income Tax on director’s loans as the tax liability sits with your business.

However, if the loan is ‘written off’ or ‘released’, i.e. it is not repaid, then you must report it via ITSA and pay Income Tax on the loan.

Your company must also deduct Class 1 National Insurance (NI) through its payroll.

Director’s loans as benefits in kind (BIKs)

If a director’s loan is £10,000 or over and free from interest, HMRC will consider it to be a benefit in kind (BIK) – a benefit which an employee or director receives which is not included in their salary, typically provided to the individual at low or no cost.

For a loan of this size, you will need to report it via ITSA.

Your company will also need to deduct Class 1 NI Contributions.

Corporation Tax

Some director’s loans create a Corporation Tax liability, reported to HMRC by form CT600A.

This occurs if a loan or advance has been made to the Director or shareholder from a close company.

A close company must be resident in the UK and controlled by either:

• Five or fewer participators (shareholders or any other person(s) who have shares or an interest in the company capital or income); or
• Any number of directors who are also shareholders.

Under Section 455 CTA 2010, a loan to a close company is subject to Corporation Tax. Therefore, the company, rather than the participator is liable for the tax on the loan.

You should try to repay the loan within nine months of the end of your business’ accounting period (AP) to avoid additional tax on the loan.

If you do this, then your company will pay Corporation Tax according to the following:

• A loan of more than £5,000 (and another loan of £5,000 or more was taken out up to 30 days before or after the original loan was repaid) – Corporation Tax is due at 33.75 per cent.
• If the loan was more than £15,000 (and another loan was arranged upon repayment) – Corporation Tax is due at 33.75 per cent.

If you don’t repay your loan within the given period, then your company will pay Corporation Tax on the outstanding amount at 33.75 per cent, as shown on the Company Tax Return.

After the loan is repaid, your company can reclaim Corporation Tax.

Exception to Section 455

An exception exists for directors and employees of the company or its associated companies when:

• The individual is employed full-time by the company or its associated companies;
• The loan or advance does not exceed £15,000; and
• The individual holds no material interest in the company (i.e. no more than five per cent of the ordinary share capital, or five per cent of the company’s assets).

Record-keeping and planning

Director’s loans come under the purview of financial management and compliance.

For this reason, you must keep detailed records of any money which you have withdrawn from the business or paid into it, as well as any tax you have paid and details of any written-off loans.

This can help you avoid non-compliance with tax regulations and support you if HMRC asks you for more information.

For further advice on director’s loans and financial planning, please contact our team.

The post Have you included director’s loans in your tax planning? appeared first on Grunberg & Co.

If you are self-employed or an individual taxpayer, you have until 31 January 2024 to get your tax return in order and strategically minimise your tax liabilities, with our team’s help.

Here’s what you need to know to get through ‘the final stretch’:

Do you need to submit a Self-Assessment tax return?

Don’t get caught out by not submitting a tax return if you are required to.

ITSA is an annual process where individuals need to declare their income to HM Revenue & Customs (HMRC) and pay any tax due.

It applies to various income sources including:

• Profits from self-employment
• Rental income
• Earnings from savings and investments.

If you’re unsure whether you need to submit a tax return, contact our team for advice.

What is the deadline?

The 31 January deadline is non-negotiable. It’s the final date for submitting your online tax return and paying any tax you owe.

Missing this deadline results in automatic penalties, starting with a £100 fine.

Keep in mind that there are other deadlines throughout the year, such as the 31 October deadline for paper returns.

Why you should do your tax planning well in advance

We recommend you start planning your tax return at the start of the new year, rather than waiting until the last minute.

Not only does this take some of the stress off the whole process but filing an early tax return also provides you with some tangible benefits.

• Early tax planning will tell you how much you owe early on, so payments won’t come as a surprise later.
• It allows you to check you are not paying too much tax with enough time to make the necessary changes and reduce your liabilities.
• Proactive tax planning gives you the opportunity to reconsider your pension contributions and alter the amount you are putting in.
• It gives you peace of mind that you are remaining compliant with regulations so you can focus on your business.

Planning strategies for your next tax return

At Grunberg, we recommend our clients follow some simple steps to achieve an efficient tax return.

• You should maintain accurate financial records, as it ensures you can claim all relevant deductions and reliefs later down the line, which ultimately reduces your overall tax liability.
• It’s important to familiarise yourself with allowable expenses such as business, travel, and home office costs, as well as understanding your Personal Allowance (£12,570) and other allowances like the Trading Allowance (£1,000).
• Make use of reliefs and exemptions like Marriage Allowance and Gift Aid donations, and consider how your pension contributions could positively impact your taxable income.
• If you anticipate a large tax bill, think about using Payments on Account to distribute your tax payments throughout the year, easing the financial pressure of a big, one-off payment.

Finally, when it comes to tax mitigation, the best advice we can give you is to seek professional advice.

Peter McMahon, our expert Tax Partner, offers his tailored and professional advice to help you with your tax return process.

Working with our tax advisers, Peter is on hand to provide personalised guidance tailored to your circumstances and we are always happy to answer any questions you have when it comes to tax returns.

Use MTD for ITSA to your advantage

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is a key aspect of the Government’s mission to modernise the tax system, ensuring an easier compliance process for taxpayers.

With MTD for ITSA set to become mandatory for individual taxpayers earning over £50,000 annually from 6 April 2026, and extending to those earning above £30,000 from April 2027, you may as well get used to the system soon.

While there will be exemptions for certain individuals, the majority of taxpayers will need to adapt to these changes.

The HMRC app is also a valuable tool for Self-Assessment and has really streamlined the process for self-employed individuals.

The Grunberg perspective

We firmly believe that being proactive about tax planning benefits businesses and individuals in both the short and long term.

By having a firm grip on your finances, you are effectively setting yourself up for a stress-free tax year in which you can focus on running your business, growing your operations, and ultimately improving your bottom line.

We have found that those who pre-emptively file their Self-Assessment in the first half of the year perform better than those who wait until the last minute.

As a result, we invite you to get in touch with one of our team to discuss your current tax planning strategies, your upcoming Self-Assessment tax return, and to start your journey to efficient financial management.

Don’t leave tax planning until the last minute. Contact us today for tailored advice and support to navigate this crucial period with confidence.

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• is unable to gain access to the car because they do not have the keys to the car, and has no power or authority to direct the person who has the keys to hand them over
• has no power or authority to direct the person who has the keys to drive the employee to a location of the employee’s choice
• is physically incapable of using the car – e.g. it has broken down and has not been repaired, or is in the garage undergoing repairs

If company cars are returned to the company premises by the employee, or the keys are posted or handed into the office, this should be satisfactory.
The employer may introduce a policy that prohibits private use, which would avoid employees having to hand back the car or keys, but HMRC will require evidence that the car has not been used privately in the period in question, with trackers being able to demonstrate this.
In this case, a written agreement should be drawn up and signed by the employer and the employee, declaring that the use of the car for private use has been withdrawn.
It should be noted that should the car availability be paused for 30 days or longer, then the fuel scale charge for BIK purposes will also be paused.
If the benefit is reduced through a lack of availability, then income tax will be reduced for the employee, and Class 1A National Insurance will be reduced for the employer.

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