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Are you aware of S455?

We are seeing a lot of clients wishing to borrow money from their company to pay the deposits for property held in another company or in their own name. This is a directors loan.

Not many lenders actually accept this but a couple do.

However that aside it’s vital you realise the implications of S455 as it could be costly if you’re not prepared for it.

Basically when you take money out of the company you’re meant to pay tax on it. However it’s common to treat this as a loan instead. Unfortunately many company directors would never pay these loans back and thus avoid tax and NI indefinitely. It wouldn’t be unusual for the company to then fold and no tax or NI paid at all.

As such the tax rules were changed in 2016.

So if your directors loan is overdrawn at the end of the tax year and is not repaid within 9 months and one day of the end of year you will be charged a flat rate of tax at 32.5%.

If you repay the loan to the company then the tax is rebated, you can even pay it back in instalments and the tax rebated proportionately.

Note however that HMRC aren’t fast to repay you and it could be well in to the following tax year before it’s received as such cashflow management is crucial.

So as not to confuse there can also be a directors loan IN to the company, usually a ‘gifted deposit’ when your company purchases a property from you or you put your own cash in to the company.