Re: Company Loans Question

If a company has profits on which all taxes have been paid and then
sets up a loan agreement with another entity, what would be liability
if there was a default on the loan?

Would the Revenue still raise an assessment as though the loan was in
fact a dividend and require further tax to be paid?

I've heard there is a way of a company lending money long term and then
writing it off but that sophisticated planning is needed to avoid
falling foul of the taxman and Company law.

If any can clarify the position, I'd be grateful


This entity is the director/shareholder I presume. Why be so coy
providing the facts.

Not being coy, just asking for information :)

If the loan goes to the company director I'd find it hard to believe
that he could legitimately say he is defaulting on the loan without the
Revenue slapping him down.

However if the money is lent to another company, say as capital for
investment but then susequently finds that the interest payments are
stopped and the company is unable to pay back the principal. What
happens then? Can the Revenue still raise an assesment for providing an
unsecured loan without having adequate safeguards in place?

The reason why I ask is that I have come across the following advice
recently with regards to taking money out of a company (after having
mentioned, salary and dividends) :

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The company lends money to you. Generally speaking this is unwise,
because the company itself has to pay a form of "deposit" to the
taxman, of 25% of the amount loaned - this is repayable when the loan
is repaid.

If the company lends more than £5,000 to you, you will be charged to
income tax on the difference between the interest on the loan you pay
to the company, and the "official rate" of interest (currently 5%)
- so if you have an interest free loan of £5,001 for a year, you
will pay income tax on £250, meaning £100 tax for a higher rate
taxpayer.

That may sound rather a good deal, but beware - there are Company Law
problems to consider.

More sophisticated planning involves the company lending money and then
writing off the loan - but this is an area where you must have
specialist advice to avoid getting into serious trouble with both the
taxman and Company Law.

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I wanted to know what the "sophisticated planning" was and how this
relates to company law in England & Wales

Any advice would be welcome.

Thanks,

Alex

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