Directors loans - Temporary

peterh

Registered User
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5
Transferring money from Limited company account to sole trader account for less than two months to blacken an over draft. Details about it:


1. Done during the same financial year. So no directors loan disclosure needed?

2. Done during quarter between p30 payments. So no income tax to be paid as loan from the company to sole trader account is repaid before p30 due.

3. Money is still available to the company to draw on if needed .... issue it is residing in an account not owned by the company.

4. History of the sole trader account making loans to the limited company where the company needed additional injection of cash temporarily. The company has repaid all these loans to the sole trader account.

5. Both sole trader and company in existence for years. No change this year just delay in contracts being paid due to delay in invoices being sent out.


Questions: As long as the money is repaid within two months is there an implication?

If money is not repaid within two months then money becomes salary payment to directors and tax is paid in the next p30.


Rather than someone say this is not allowed please explain why you believe this not to be allowed. I contacted revenue about it and they were not clear. They did give an example that if money was transferred in error from the company and then repaid by the director within 3 months then there is no issue.
 
Rather than someone say this is not allowed please explain why you believe this not to be allowed.

It's not a matter of belief. It's a matter of law. The Companies Act 2014 prohibits loans to directors for amounts in excess of a set % (10% iirc) of the net assets of the company. Where such loans are provided they require disclosure in the financial statements. This particular prohibition actually has nothing to do with Revenue although a tax charge may also apply to company loans provided to directors.
 
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As per the 2014 Act the directors have 2 months to rectify if a loan is outside of the 10% net assets

Where are the loans reflected in the financial statements is it within the directors loan account.... if the loan was repaid in the same financial year then the directors account doesnt reflect the loan so is it disclosed as a note to the financial statement?


Alternatively What you are saying to stay within the companies Act 2014, the loans to the directors should be shown as salary payments until p35 is made.
1. company provides director with money
2. The company pays income tax on the money given to the director (using company money) this shows the money was taken as a salary
3. With in a few months within the same financial year the Director repays the money back to the company
4. Then at year end the Company gets a tax refund when the P35 is completed as it would of over paid Tax.

Net result the director gets a loan?
 

If the Act provides a 2-month window (I haven't checked recently) you may well be in the clear as regards its breach, but I would expect that the loan itself and its maximum level during the year are both to be disclosed as a note to the financial statements.


Alternatively What you are saying to stay within the companies Act 2014, the loans to the directors should be shown as salary payments until p35 is made.

It's actually you who's saying this...
 
3. Money is still available to the company to draw on if needed .... issue it is residing in an account not owned by the company.

Overdrafts are on demand, meaning that if you pay off the current OD, the bank would be fully within their rights to decide not to extend it again when you intend to pay it back to the company.