Possible to get credit union loan to refund loan from company?

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denby11

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I took out 25k out of my business in March to put into an investment which I had hoped would produce a good return before year end and was then going to put money back into business. It now turns out my investment will be more of a medium term project with my return being bigger than I first thought but will take a couple of years to come through.
I’ve about 5k personal savings in credit union and good record with them. Would they give a loan of 25k for me to pay back company and avoid paying big income tax bill at end of year?
 
This is a bit confusing. Is this correct.

1) You took a payment of €25,000 from your limited company in March
2) You did not put this through the salary system
3) You don't want to put it through the salary system - you want to refund it.

I am not sure how relevant the year-end is in this question? If you took out €25k in March, you should have put a gross salary of about €50k through the payroll in March. And the company should have paid the PAYE and PRSI in April.

If your plan was to "repay" the loan before the end of the year so that it would not appear in the accounts, then you are treading on dangerous grounds. Revenue would not like that if you have an audit. And I think that your company's auditors might have to report it whether you repay it or not.

It is best not to mix up your personal finances with your company's finances.

I doubt the Credit Union will give you a loan for an investment, but I don't know.

Can you sell this investment now and refund the company? That would be the best thing to do.

Brendan
 
If the 25k is less than 10% of the companies net assets and you are an employee of your company, it possibly can be treated as a preferential loan.
This carries a 13.5% "interest rate" for Benefit in kind purposes. So approx. €1600 BIK

Your accountant would be best person to advise.

But as above, revenue keep an eagle eye open for this type of stuff and in a way it probably is prudent to regularise this before end of year and avoid repeating. It tends to trigger a preliminary tax inspection too. - I've learnt over the year to keep an arms length from the company's books and I treat myself simply as an employee and abide by the same rules as the other employees here when it comes to financial matters.

Credit unions are awash with cash and will lend where they are fairly certain of repayment, probably worth a meeting with.
 
peemac said:
it probably is prudent to regularise this before end of year and avoid repeating.
Click to expand...

Hi peemac

Fully agree with your post apart from the above. Should he not regularise it immediately.

Revenue would not like to see a loan repaid just before year-end, only to be taken out again, just after year-end, as some directors do.

Brendan
 
Brendan Burgess said:
Hi peemac

Fully agree with your post apart from the above. Should he not regularise it immediately.

Revenue would not like to see a loan repaid just before year-end, only to be taken out again, just after year-end, as some directors do.

Brendan
Click to expand...
Hi Brendan

Of course he should regularise it as soon as possible to avoid having to pay a ruinous rate of BIK in the meantime but @peemac's advice to ensure this is done before the year end is 100% correct as this also avoids a 20% income tax charge being levied on the company post-year end.

There is no indication whether or not this level of directors loan is illegal - if the sum is less than the value of 10% of the value of the company it is neither illegal nor reportable to the ODCE in the remotely likely scenario that the company is subject to statutory audit.
 
Thanks Tommy

Just be clear. He took €25k out in March. Let's assume he repays it now, 3 months later.

He should declare BIK of
€25k
@13.5%
x3/12
or €843 benefit
and pay about half of this in tax - say €400.

So the real rate of interest is the marginal tax rate on 13.5% or about 7%

And the company has to pay 20% Income Tax if it's still on the books at the year-end.

Brendan
 
Brendan Burgess said:
Thanks Tommy

Just be clear. He took €25k out in March. Let's assume he repays it now, 3 months later.

He should declare BIK of
€25k
@13.5%
x3/12
or €843 benefit
and pay about half of this in tax - say €400.

So the real rate of interest is the marginal tax rate on 13.5% or about 7%

And the company has to pay 20% Income Tax if it's still on the books at the year-end.

Brendan
Click to expand...
That's pretty much it, as far as I can see, Brendan.
 
Thanks for advice, loan was taken out from company and is less than 10% of assets. I’ll make steps to put this through PAYE system and just pay tax on it. Point taken not to mix personal and company.
Thanks
 
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