Can I temporarily take money out of company and not pay tax?

[MeathCommute]

I am a contractor with a limited company, and business account. My wife has an inheritance due, and has placed an order for a new car. The car is due to arrive on Thursday, but the money may not come through for a few days after that. I have the money in my business account. Would it be allowable to take the money out of the business account, and not pay the tax on it, then put the money back in to the business account in a few days, once the inheritance arrives?

 

[newirishman]

You’d probably need to put some paperwork in along the lines of the company giving you a loan. This should avoid the taxation problem, as long as you charge some market comparable interest.
Which is very low at the moment anyways.

 

[Brendan Burgess]

Hi Meath

The best person to ask is your accountant. There are some rules about accountants having to report such activities. I don't know if it would matter if it were for just a few days. But if went over the year-end you would be in deep trouble.

A bigger question is why do you have so much cash in your company? Have you done a proper tax plan?

Brendan

 

[Jim2007]

Why not just take it out as an advance on your wages. Then when your inheritance comes in use it to make up for lost salary in the coming months.

 

[MeathCommute]

A bigger question is why do you have so much cash in your company? Have you done a proper tax plan?

Brendan

Thanks Brendan. I have to say that I am a bit of a disaster in that regard. I have money in the account, and I am going to talk to the accountant about contributing to a pension for tax planning. I was a PAYE worker for 31 years, and only contracting for a year and a half, so I am not as well up on things as I probably could be. The cash is building up in the company. Thankfully we are very blessed with money at the moment. The inheritance will also help that position

 

[MeathCommute]

Why not just take it out as an advance on your wages. Then when your inheritance comes in use it to make up for lost salary in the coming months.

That's a good way of looking at it. Same difference I suppose. I put the cost of the car through Sage, and the tax figure was frightening. For 19k nett, it was working out at 21k tax PRSI and USC!

 

[torblednam]

This is a total non issue, particularly if it's the case that the money will be made good to the company by the director very soon after it's withdrawn from the company.

There are two main issues with directors drawing money out of their company: company law and tax obligations.

It's highly unlikely a cash rich contractor's company will have any issue under company law (accountant can confirm this).

On the tax side, there is potential BIK on an interest-free loan made to a director, but this absolutely immaterial if we're talking about a loan that is only outstanding for days or weeks. There are also certain close company provisions, which kick in if the loan remains outstanding for a period after the accounting year end, and these are also irrelevant in the circumstances as outlined.

Just maintain a clear paper trail of all the transactions involved and there'll be no problems.

 

[Bronte]

Why not just delay delivery of the car. Especially if it's arriving early. Odd to buy something if one didn't have the money to pay for it in hand.

 

[T McGibney]

This is a total non issue, particularly if it's the case that the money will be made good to the company by the director very soon after it's withdrawn from the company.

It's most certainly not a total non-issue. Any form of company loan or advance to a director or connected party, amounting to 10% or more of company assets as defined, is an indictable offence under company law and the ODCE have initiated many prosecutions against companies and directors for such breaches in the past.

Even if prosecution isn't an issue, in my experience as an accountant, such messing can create endless issues for those concerned. Especially if a temporary advance turns into a semi-permanent one.

And, as such loans and advances are disclosable on company accounts, they can dramatically raise the risk of Revenue audit.

 

[torblednam]

It's most certainly not a total non-issue. Any form of company loan or advance to a director or connected party, amounting to 10% or more of company assets as defined, is an indictable offence under company law and the ODCE have initiated many prosecutions against companies and directors for such breaches in the past.

Even if prosecution isn't an issue, in my experience as an accountant, such messing can create endless issues for those concerned. Especially if a temporary advance turns into a semi-permanent one.

And, as such loans and advances are disclosable on company accounts, they can dramatically raise the risk of Revenue audit.

I think you should heed the advice you so often throw out yourself and read (and quote) my post more carefully.

I indicated the potential company law issue and told the OP to get confirmation from their accountant that they won't breach it. That aspect is a non-issue, once it's confirmed that they won't be in breach. Rereading the thread though, I see OP has only been contracting 18 months, so he may well breach the limit.

I agree that it can cause issues if the money isn't repaid, and the first sentence of my post references that I'm talking in the context of the OP doing what they've said they will, and returning the money to the company in a very short timeframe.

On your final comment, I'm not sure how a balanced directors loan account, without an overdrawn balance, would heighten the risk of an audit. In my experience, a lot of small companies / their accountants prepare their accounts by posting all sorts, including net salary, through a directors current/loan account and then increasing remuneration if necessary after year end when preparing accounts, resulting in a supplementary P35. They can't, and don't, all get audits (I know that's not what you said, but since we're into not exactly quoting each other properly... ).

 

[T McGibney]

I think you should heed the advice you so often throw out yourself and read (and quote) my post more carefully.

Wow, touchy....

You did say:

This is a total non issue, particularly if it's the case that the money will be made good to the company by the director very soon after it's withdrawn from the company.

It isn't - for the reasons I explained above.

It's highly unlikely a cash rich contractor's company will have any issue under company law.

It's not. It involves the commission of an indictable offence.

Very few contracting companies will have net assets amounting to ten times the price of a new car, so the OP's query clearly involves a prospective indictable offence.

On your final comment, I'm not sure how a balanced directors loan account, without an overdrawn balance, would heighten the risk of an audit.

Balances overdrawn at any time of year are explicitly reportable on company statutory accounts.
Overdrawn balances at year end are reportable on CT1. I have seen this snare many companies who advanced "temporary" directors loans which ended up not being that temporary.

The issue of temporary current account balances being addressed regularly or post hoc by remuneration adjustments is a separate matter accommodated by legislation and practice, and is irrelevant to the scenario outlined here.

 

[MeathCommute]

Why not just delay delivery of the car. Especially if it's arriving early. Odd to buy something if one didn't have the money to pay for it in hand.

That's my wife for ya!

 

[Brendan Burgess]

Balances overdrawn at any time of year are explicitly reportable on company statutory accounts.

As this clearly answers the question I am closing the thread rather than having yet another personalised argument over who said what and who read what.

Brendan