Hi,
Sorry for the seemingly random question. I hope my question is not too specific.
As a director, I am considering making a “positive” director’s loan, i.e. the company will owe me money.
I understand that any interest payments are included in overheads and do not attract corporation tax. (I know there’s a special quarterly return and 20% is deducted at source).
With a commercial loan, I understand that although interest payments are considered part of overheads, paying down the capital attracts corporation tax.
With regards to the director’s loan, HMRC say:
Your company does not pay Corporation Tax on money you lend it.
Just in case anyone else reads this and is interested, I spoke to my accountant.
In my non-accountant head, corporation tax is payable on the profits. After you’ve paid the CT on your profits, you can use what remains to pay down the loan, so you can’t do what I was hoping, which is to show £0.00 profit because all the profit has been used to pay down the loan, effectively leaving you with no profit and therefore no CT.
This applies to commercial and director’s loans.
It may be obvious to others. I still can’t work out how the likes of Google show no profit. HMRC seem to have you every which way.
Capital loan repayments are a balance sheet exercise, they don’t touch the P and L.
Interest is an addition to the loan, and do touch the P and L.
Its the cost of borrowing money.
If we applied your logic and said capital repayments attract tax, then tax would also apply to the initial loan your received.
I think there may be some confusion between commercial loans and directors loans.
Google show no profit because of how they structure their group companies and the territories they register their companies in. Has nothing to do with loans or loan relationships.