‘Taking the credit’ by Mark McLaughlin, CTA (Fellow) ATT (Fellow) TEP is a consultant with The TACS Partnership LLP

Mark McLaughlin looks at the timing of receipts to directors’ loan accounts for the purposes of establishing the potential liability to tax and National Insurance contributions.

An HMRC enquiry into the tax affairs of a family or owner-managed company will often involve some scrutiny of directors’ loan accounts (DLAs). HMRC recognises that DLAs are a potentially lucrative source of additional revenue under the ‘loans to participators’ provisions (CTA 2010, Pt 10, Chs 3-3B) and possibly as a benefit-in-kind on the director if a loan account is (or has been) overdrawn (ITEPA 2003, s 175).

HMRC will commonly ask for a detailed analysis of the DLA, showing the dates of debits and credits. Aside from the additional tax liabilities mentioned above, a DLA analysis may reveal (for example) failure to notify liability to a charge under CTA 210, s 455, ‘bed and breakfasting’ transactions, or failure by the company to apply PAYE at the correct time to bonuses credited to the DLA.

Download the full article below: