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Category Archives: Tax Tips

Overdrawn Directors’ Loan Accounts

If you are a director of a small company you may have made private payments using the company’s bank account or other resources. Unless these private amounts are reimbursed to the company you would become a creditor, owe money, to your company – also known as having an overdrawn director’s loan account.

There are three principle tax and NIC consequences:

  • Your company may have to make a corporation tax payment based on the overdrawn balance.
  • Unless you pay an HMRC agreed rate of interest on your loan you may suffer a benefit in kind charge.
  • If a benefit in kind charge does apply, your company will also need to pay Class 1a National Insurance contributions.

There are ways to mitigate, or eliminate, these various charges as long as you comply with the relevant regulations. For instance:

  • If you repay any overdrawn loan before the end of your business accounting period, or within nine months of this date, you can avoid the 25% corporation tax charge.
  • Even if you are unable to repay your loan within the nine month period, when you do subsequently repay the loan you can apply to have the 25% corporation tax refunded. There will be a delay in this process.
  • As long as you have paid interest, at the agreed HMRC minimum rate, on your loan account, there will be no benefit in kind charge. If this is so, your company will also have no Class 1a NIC to pay.

You also need to remember that an overdrawn director’s loan account, which exceeds £10,000, is illegal under the Companies Act 2006, unless it has previously been approved by the shareholders. This approval needs to be properly documented.

Of course, the correct way to extract profit from the company is by way of salary for the director’s or, if the company has sufficient distributable reserves, by way of dividend for shareholders. This gives rise to personal tax implications.

HMRC warn of Email Rebate Scam

HMRC are warning that taxpayers are being emailed stating that they are entitled to a tax rebate.  These emails are being sent from a number of bogus email addresses. They inform recipients that they are entitled to a tax rebate and invite them to complete an online form to receive a rebate of tax.

HMRC are advising that taxpayers should not visit the website contained within the email or disclose any personal or payment information.

Email addresses used to distribute the tax rebate emails include:

New addresses
noreply@hmrc.gov.uk
srvcs@hmrc.gov.uk
secure@hmrc.gov.uk
message@tax.co.uk
Ref@hmrc.gov
info@hmrc.gov.uk
confidential@hmrc.gov.uk
securemail@hmrc.co.uk
refunds@hmrc.org.uk
Support@hmrc.gov
srvshm@hmrc.gov.uk
services@hmrc.gov.uk

Historical addresses
no_reply@ir-efile.gov.uk
officer.robinson@hmrc.co.uk
refunfform@hmrc.gov.uk
success@gov.co.uk
irs@egroup.com
info@hmrc.co.uk
HM_R&C@HMRC.GOV
Tax.refunds@hmrc.gov.uk
helpdesk-hm@hmrc.gov.uk
notice@hmrc.gov.uk
help-centre@hmrc.gov.uk
refunds@hmrc.gov.uk

HMRC have confirmed that they do not send out emails using these email addresses.

 

Taxing Times – How the Taxman treats Investments

Different investments are subject to different tax treatment. The following is based on our understanding, as at 6 April 2011, of current taxation, legislation and HM Revenue & Customs (HMRC) practice. all of which are subject to change without notice. The impact of taxation (and any tax relief) depends on individual circumstances.

Unnecessary Tax on Savings

If you or your partner is a non-taxpayer, make sure you are not paying unnecessary tax on bank and savings accounts. Avoid automatic 20% tax reduction on interest by completing form R85 from your bank or product provider, or reclaim is using form R40 from HMRC.

Individual Savings Accounts (ISA’s)

You pay no personal Income Tax or Capital Gains Tax (CGT) on any growth in an ISA, or when you withdraw your money. You can save up to £10,680 per person in an ISA in the 2011/12 tax year. If you invest in a Stocks and Shares ISA, any dividends you receive are paid net, with a 10% tax credit. The tax credit cannot be reclaimed by anyone including non taxpayers. There is no further tax liability. The impact of taxation (and any tax reliefs) depends on your individual circumstances.

National Savings & Investments (NS&I)

You can shelter money in a tax-efficient way within this Government-backed savings institution. During Budget 2011 it was announced that NS&I is to relaunch index-linked savings certificates. Returns will be tax-free and maximum that can be saved is £15,000 per individual per investment. Learn more about NS&I

Reducing the P11d Burden

As the new tax year starts so does the build up towards the deadline for submitting forms P11d(b) and P11d to HM Revenue and Customs (HMRC). These forms report the Benefits in Kind that employees have received during the tax year along with business expenses reimbursed where there is no dispensation in place.

The forms place a significant administrational burden on all businesses because of the complexity of them and the potential penalties that HMRC can apply for late submission or incorrect disclosure.

The P11d documents for the 2010/11 tax year should be submitted to HMRC by 6 July 2011. If you file your documents late you will be charged a penalty of £100 per month or part month for every 50 employees. An incorrect P11d can incur a maximum £3,000 fine.

The p11d’s are complicated forms and take a lot of time to complete. One way to reduce a lot of this administrative burden is to apply for a dispensation with HMRC. Contrary to popular belief, even though no tax is due from business expense reimbursements, the amounts reimbursed still need declaring on an employee’s P11d along with a corresponding s336 election. If you agree a dispensation with HMRC you can agree not to include these reimbursed business expenses on the forms. This can save hours, if not days, going through your records to collate all of the required information.