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Company Law: Director's Loan ?

  • 14-01-2013 10:59pm
    #1
    Piliger
    Registered Users, Registered Users 2 Posts: 6,741 ✭✭✭


    Hi .. helping a friend with small business in tough environment (I used to study company law but not for a long time)

    Up until a few years ago a Director's loan could be paid off before the y/e and re-loaned after the y/e.
    Can someone clarify to me what has changed and why it is not possible now ? How long can a director's loan be left in place without suffering taxes/penalties ?

    Tks


Comments

  • #2
    Strawberry Fields
    Closed Accounts Posts: 611 ✭✭✭Strawberry Fields


    Section 31 Companies Acts 1990


  • #3
    Piliger
    Registered Users, Registered Users 2 Posts: 6,741 ✭✭✭Piliger


    I don't understand ... I know of many small (closed) companies where small (<25k) money is owed by a director for lots of reasons .. and I think that they simply had to pay some penalty or tax on the balance at the end of the year end (no audit required). Am I wrong ?


  • #4
    Strawberry Fields
    Closed Accounts Posts: 611 ✭✭✭Strawberry Fields


    is it less than 10% of assests?


  • #5
    Piliger
    Registered Users, Registered Users 2 Posts: 6,741 ✭✭✭Piliger


    It's a one man company where his services to clients are the main income. Two directors - him and wife - so assets are almost nil. Loan balance is 25k half way through year because of his mis calculation of salary etc.


  • #6
    nompere
    Registered Users, Registered Users 2 Posts: 1,678 ✭✭✭nompere


    Piliger wrote: »
    I don't understand ... I know of many small (closed) companies where small (<25k) money is owed by a director for lots of reasons .. and I think that they simply had to pay some penalty or tax on the balance at the end of the year end (no audit required). Am I wrong ?

    When God was a boy, and I first learned tax, it was Section 98 Corporation Tax Act 1976. Now it's S. 438 TCA 1997.

    The tax payable is equal to 20/80ths of the outstanding loan. The tax is repayable when the loan is repaid.


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  • #7
    Piliger
    Registered Users, Registered Users 2 Posts: 6,741 ✭✭✭Piliger


    nompere wrote: »
    When God was a boy, and I first learned tax, it was Section 98 Corporation Tax Act 1976. Now it's S. 438 TCA 1997.

    The tax payable is equal to 20/80ths of the outstanding loan. The tax is repayable when the loan is repaid.

    I see that is is grossed up, thanks. I also see that the first 15k is not liable to tax ?


  • #8
    nompere
    Registered Users, Registered Users 2 Posts: 1,678 ✭✭✭nompere


    Piliger wrote: »
    I see that is is grossed up, thanks. I also see that the first 15k is not liable to tax ?

    There's no liability on a loan of €19050 or less.

    There's a full liability on a loan of more than €19050.


  • #9
    Piliger
    Registered Users, Registered Users 2 Posts: 6,741 ✭✭✭Piliger


    So would I be essentially correct in saying that if the director reduces his director's loan account to below 19,050 he would be immune to any tax liability - and that would leave him solely in violation of the Companies Act. However that violation is technical and has no legal implications for him unless the company were to have action taken against it by a 3rd party. So he should rectify it soon ... but no massive hurry ?


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