Overdrawn Director's Loan Accounts & s419 Tax - May 2009
Due to the current economic climate s419 tax is becoming much more of an issue than in previous years, as company profits are being eroded by spiralling overheads.
What is s419 tax?
s419 tax is due when a director borrows money from a company, and the money has not been repaid in full to the company within nine months of the accounting year-end of when the loan was made.
At what rate is s419 tax paid?
s419 tax is due at 25% of the loan balance outstanding to the company, and is payable nine months after the year-end. There are exceptions for loans less than £15,000 where the director has less than 5% of the share capital and meets certain other conditions.
Why do I need to worry about s419 tax?
In many small, family companies, the shareholders of the company are also usually the directors, and this is when lines between who funds belong to can become blurred. When a decision is made by a director to withdraw any funds from a company for personal use, ('drawings') they must ensure that sufficient profit reserves are available within the company in order to declare a dividend to cover that withdrawal. If there aren't sufficient funds available, the result is likely to be the director owing money to the company, and therefore s419 tax being due.
Repayment of s419 tax
When the director repays the loan to the company in full, the s419 tax will be fully refundable from HM Revenue & Customs.
If this is an area that you feel may be of concern to you and your company, please contact Rosy Ware.
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