BIK / Tax issues re repayment of directors loan

[jello1000]

Hi,

If a director at the companies accounting year end has a loan from that company, i.e. the director owes the company money, what are the tax implications if the loan is repaid within 6 months of the year end.

My understanding is the following:
For the company
The company is liable for income tax on the grossed up loan balance which is payable to Revenue. However if the loan is repaid within 6 months amounts paid to Revenue are refundable to the company.

For the director
BIK is chargeable on the loan balance as it is deemed a preferential loan and BIK arises and is payable by the employee.

My question is if the loan is repaid by the director with 6 months of the year end can a claim be made to refund all or part of the BIK paid? If yes is this refund claimed through the company on the operation of the directors payroll or is it claimed for personally by the director on filing their own personal income tax return.

Thanks in advance for any comments,

Regards,

 

[Breninio]

The two issues i.e 1) the requirement for the company to gross up and withhold tax on the loan and 2) the BIK issues for the director need to be looked at separately.

I assume the company is a close company and the director receiving the loan is a participator in the company. If this is the case then there would normally be a requirement for the company to withhold tax on the grossed up value of the loan and pay this over to Revenue. The tax withheld would be repaid to the company when the loan is repaid. However, where the loan is repaid within 6 months of the year end then the withholding tax issue may not arise. This exemption from the withholding tax requirement is allowed by Revenue on a concession basis and will be removed if Revenue form the opinion that the concession is being abused i.e. if the loans are made and repaid on a recurrent basis. Please note that if the value of all loans to the director do not exceed €19,050 then the withholding tax requirement may not apply irrespective of when it is repaid (provided other conditions are satisfied).

The BIK issue for the director is separate to the above and repayment of the loan within 6 months does not avoid the issue. The BIK is calculated in the normal way depending on the interest rate charged to the director on the loan.

 

[jello1000]

Thanks for the reply, you are correct the company concerned is a close company. Thought there might have been a way in recovering the BIk suffered.