May 2nd, 2015

Saving Tax with Directors Loan Accounts

If you have a company that owes you money there’s a great opportunity to save some tax.

In recent years many companies have been set up when a sole trader converted their business to a limited company.  Part of the tax planning at the time may have been to sell the ‘goodwill’ to the company creating a large directors’ loan account.

It’s now possible, in the right circumstances, to pay yourself interest on the loan – and get it tax free.

For example, if your company owes you £30,000 it could pay you interest at 15%* – a total of £4,500.  With careful planning you could receive this all tax free.  As an added bonus, the company can get tax relief of the interest paid – a saving of £900 in this example.

We don’t like complicated tax planning schemes – so we like the fact that this is simple and won’t have the tax man knocking at your door!

Here’s the key points you need to take advantage:

1. Your company owes money to you.  We’d suggest at least £10,000.

2. Your earned income is less than £10,600 (this doesn’t include dividends).  This will apply to many small companies who pay a modest salary with the balance as dividends.

For more details just email us and we’d be happy to discuss how we can help you.

* you’d need to pay a realistic rate for an unsecured loan to a small limited company.

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Limited Companies

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Director

John manages a wide portfolio of owner managed businesses and oversees the smooth operation of the firm’s payroll department.

After obtaining his degree in mathematics from the University of Liverpool, John joined Jonathan Ford & Co in 2004 and qualified as a chartered accountant four years later. John likes to keep abreast of developments in tax and accounting and is responsible for the mentoring of junior staff.

Outside of work, John enjoys keeping fit and is a Liverpool FC season ticket holder.

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