In this week’s Q&A, Sana Naveed ATT, adviser at Croner-i VIP Tax Team, explains the tax rules on repayment of director’s loan accounts and bed & breakfasting arrangements
My client is a sole director/shareholder of a limited company, and currently has an overdrawn director’s loan accounts (DLA) of £25,000. They are looking for ways to avoid paying section 455 tax, and has asked me if he repays the entire amount just before the due date and then re-borrows it after more than 30 days, will that work?
The bed and breakfasting rules at section 464ZA (1) Corporation Tax Act 2010 (CTA 2010) relate to director’s loan accounts.
The rules stipulate that the original loan remains liable to s455 penalty tax even if it is repaid by the due date if within any period of 30 days repayments of £5,000 or more are made to the company, and the shareholder re-borrows £5,000 or more from the company.
