Directors ability to draw tax free cash clamped down on
In the Budget the Government announced that it will be introducing legislation curbing the ability for a company to lend its owner-managers cash, free of tax.
Previously, owners were able to take money from their business as loans, tax free. A special corporation tax charge of 25% would only be applied where any such loan remained outstanding nine months after the end of their accounts year. To get around this, some company owners reimburse the funds just before the date the tax would be charged, only to take the funds back out almost immediately.
The draft legislation introduces a”30 day rule”, meaning the company will still suffer the tax charge where the owner has repaid a loan to the company but takes a replacement loan out within 30 days.
In addition, where such loans are over £15,000, the tax charge will still apply if a loan is repaid by the owner but there is an arrangement in place, or even an intention to take the money back out, regardless of the 30 day time limit.
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