Business tax return

[akania]

I run a business with my brother , he's the director and I'm an employee. I had to borrow some money out if the business and was due to pay it back before the end if the tax year. I have paid most back but I was waiting for some funds to come in which haven't and he's now having a fit that it's going to cause problems because the end of the tax year is coming. I understand nothing about this so could someone give me some advice as to what will happen with the tax office. The amount is £1000.00

 

Many thanks

[Swoosh84]

Did you earn more than £8,500 in the tax year. Can you please also confirm if the loan was more than £5,000?

[akania]

Did you earn more than £8,500 in the tax year. Can you please also confirm if the loan was more than £5,000?

 

I borrowed 3000 paid back 2000 yesterday as that was all i could scrape together . I will have the other 1000 next week but he's having a fit saying he needs it today for the tax return

 

I earnt around 32k last year

[akania]

I am paye by the way

[Swoosh84]

Well the goods news is, as the loan was under £5,000 you do not need to report this to HMRC. In respect of the other £1,000, if it cant be paid before the year end then he will need to mark you down as a creditor in the company accounts. Alternatively you can write off the loan and class 1 NIC contributions will need to be paid on it with a P11d form being submitted.

[akania]

Thank you so much for your answer . So why is he acting as if it is the end if the world and we are going to get into trouble ?

[Swoosh84]

Perhaps he was not aware that Employee loans are acceptable or perhaps he misses the £1,000. In honesty and I mean no offence, as a Company Director myself, I would be annoyed if a loan was not repaid on time as promised.

[akania]

I totally understand however it is my company as much as his , just that I am an employee as I was an ex bankrupt (2007) so it was easier. The company owes me 5000 but I can't take it out for tax reasons lol so a vicious circle. I'm just as annoyed as him as I have been waiting for a compensation cheque from my solicitor since jan 2014 but it's been a catalogue of disasters.

[akania]

What I am trying to find out though is , is it that he's annoyed or is it that I've cocked his figures up or is it that we will get into trouble with the tax office and fined ?

[BazzaS]

I suspect it is not that there is a tax offence, but is it that he needs the money for the company to settle its tax bill?

BTW are you a shareholder? If not, on what basis is it "your company as much as his"?

[akania]

Yes 49% he's 51%

[Swoosh84]

He won't get fined for this as such. It is just a loan, as Bazza says, the money may be needed elsewhere in the business.

 

Although out of curiosity, I note you mention you are on PAYE and earning 32k per year, presumably from this company. Have you ever considered dividend payments as opposed to PAYE since you are both shareholders? Being on PAYE you will have paid approx 7.5k in tax over the year and the company would have paid approx 3.3k in employers NI, a total tax payment of 10.8k. If you reduced your PAYE salary to £7,692 there would be no tax or NI to pay on this. You could then take £24,000 out as dividends, the only amount due on this would be corporation tax at (i'm assuming) a rate of 20% meaning the total tax for the entire year would only be £4,800.

 

This would reduce your tax bill and both your £7,692 and £24,000 would be free of tax, so you would get £31,692 in your bank account every year, the bill for £4,800 would be paid by the company. This year (2014/15) you are allowed a monthly salary of £663 plus a monthly dividend of £2,500 without paying any tax.

[akania]

I need to speak to him regarding this . When I went bankrupt I obviously had to come off as a director to safe keep the business however I have been discharged over 6 years so maybe it's time I went back on especially as there would be such a massive tax saving .

 

Thank you for all your help on this. I should have the funds next week anyway so u guess there is nothing I can do until then .