As you may be aware interest free loans to directors made by a company could previously avoid both a BIK charge on the individual and S455 tax on the company by following certain steps.
Step 1) Keeping the amount borrowed below £5,000
Step 2) Repaying the loan to the company within 9 months of the year end. Note that there were previously no rules to prevent the director from re-borrowing the same amount the day immediately following repayment.
Unfortunately the “bed and breakfasting” of director loans has been addressed by HMRC to prevent the immediate repay/ re-draw scenario. The anti avoidance rule applies where any director repays a loan to the company but within 30 days of that date takes out a subsequent loan.
Additionally the anti avoidance also states that any temporary funding arranged with the sole purpose of bridging the 30 day gap would cause any repayment to be ignored.
The intricacies of the new rules are too detailed to be discussed in length here but if you currently have an overdrawn director’s loan account and are worried about how the above changes could affect you please get in touch today.