Beneficial Loans

[thompson1]

The company I work for has recently been subject of a HMRC Employer Compliance review. One of the subjects covered was debit balances on Director's Loan accounts exceding £5,000. HMRC would now like to fine us for non-declaration and charge a BIK on these balances. In the future, I would like to charge interest on such loans in order to avoid this problem but I am unsure of the meanings of the definitions of 'qualifying loans' particularly 'If the interest that is payable (or would be payable if the loan bore interest) on a qualifying loan (see EIM26120) is wholly eligible for relief under Section 353 ICTA 1988' Can anybody advise me on a way forward. Thanks

[wamstax]

Basically what it is saying is that if the money was used for a qualifying purpose e.g. lending to a business and would be allowable as a tax deduction if tax relief would be allowable if it was paid. So if you used the money to buy a property for letting and the interest would be allowable against letting income then the loan would be exempt from the BIK charge. This is just an example of course and any situation where loan interest would be allowable would fit the bill to avoid having to enter into transactions that would have little effect taxwise at the end of the day.
However most likely that your overdrawn loan account was merely accumulation of private & personal expenses & not tax deductible in which even pay the official interest rate to get out of it. You might try telling HMRC that your compoany was going to retrospectively charge you interest so that they shouldn't be seeking to tax you anyway and see what success you have
regards
bill@wamstaxltd.com
http://www.wamstaxltd.com