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If I have a directors loan of £100k taken out in the UK and I am now look to pay this back. Would I be looking to pay the full £100k or is it calculated differently?
I am slightly confused here, when you take the directors loan you are effectively avoiding paying tax on that as the alternative to having those funds are to take dividends.
So when paying back a directors loan, would it not be just paying back the tax that you would pay for dividends?
:) Thanks
The purpose of a director's loan account is to allow you a straightforward way to either subsidise a cash-poor company with personal capital (thus becoming a creditor to the company), or to take money out of the company (e.g. to cover personal living expenses whilst you operate the company, and thus become a debtor to the company).
The purpose of the latter is because you (or other directors) may not want to finalise the withdrawal you make (via salary or dividend) until later - for example, the dividend will be determined later by the actual profitability of the company.
Until the profitability is clarified, you remain on the hook personally to repay the director's loan you've received. If the dividend (i.e. your share of the profits) later exceeds the loan, then you'll simply be paid the net amount (i.e. the gross dividend minus the total loan you've already received).
If the dividend turns out to be less than the loan, you'll have to settle the debt with the company by putting money back in - perhaps by liquidating your assets, or taking out a personal loan at interest. Also if the company folds and owes creditors (whether other directors, or suppliers, etc.), you'll be personally liable to make good the director's loan you received.
But in the meantime, you can fund your standard of living based on your rough expectation of profitability, and leave the detailed accounting and taxpaying until later once the whole year's trading is concluded.
If you plan not to pay the money back then it's not tax avoidance but criminal tax evasion. Also, if you go bankrupt, then anyone who is owed money by your company can go after you, because you owe the company £100k which needs to be repaid.
If you pay the money back, then it's perfectly legal, and you can pay yourself the same money as a dividend, after paying the right taxes.
PS. You said "If the company makes £100K profit, I can just take the money out as a dividend and put it back in the company". That would not be clever if you are the sole owner. Say the company made £100K profit, pays £20K corporation tax and has £80K in its bank account. If you take that money out as a dividend, you pay probably another 25% taxes, so you have £60k in your private pocket. That's fine if you want to spend it. But if you re-invest it, you still own only 100% of the company, and the company has now only £60k in its bank account. If you don't want to spend the money then better to leave it in the company, and you can pay yourself dividends when you are retired, or if you want to go on holiday for a year, because then you'll have no other income and therefore a lower tax rate.
Or if I put 100k back into the company to balance the books, I could then take out then 100k as dividends and pay the normal dividends tax on it?
Yes, THAT is correct. You got it.
If you decided to "pay yourself first", that is inviting the end of the universe. Sure, say you got paid (random example) 400k - of course both the company and you paying various taxes etc on the 400k. Maybe you (personally) are left with 193k. You wait a couple days and pay back the 100k from your bank account to the company bank accounts. If you do that, essential to have immaculate accounting, paperwork and orderlyness. Good luck!
