QPR Yearly Financial Report..Part 2..A Fans View

[qblockpete]

I would add probably why the poster didn;t want to post.

His last comment to me and I didn't include it at the time, because I didn't see it being a problem, but

Thanks Pete. I ought to mention that when I wrote that I hadn't seen QPRDad's post. I'm pretty sure he is also a practising accountant and my comments regarding some posters across the boards being wide of the mark regarding the accounts DO NOT include QPRDad. He certainly seems to have a handle on things and my post should be read in conjunction with his...not in competition!!

[ChelmsfordRs]

What question(s) do you want answering Chelmsford?

My reply was to the OP but I do have a few related question for the Accountants regarding interest free loans to directors (asking generally to avoid any issues but I think we all know what I'm referring too).

If a director of a company gets an interest free loan that is clearly stated in the company accounts I think we can assume three things a)It is a legal payment b)It is all above board and not hidden c)It has been approved at boardroom level by all major shareholders

My questions are...

From an accounting point of view what is the benefit of providing an interest free loan rather than paying a higher basic salary ?

How does the tax man calculate the value of this benefit ? For example if the director gets an interest free loan of £100k then this could be worth £5k a year assuming an interest rate of 5% or £10k a year if you assume an interest rate of 10% ?

Is this type of loan to directors common within Limited companies ?

What tax will the director have to pay on this loan ?

I have two reasons for asking these questions, firstly as a director in my own limited company I spoke to my accountant a few years ago and asked him if I was allowed to give myself an interest free loan from the company, he told me I could but the tax I would have to pay would be more than the interest I would "save". Secondly Im fed up with all the GP Haters constantly bringing up this interest free loan as if it something dodgy and backhanded.

[qprdad]

My reply was to the OP but I do have a few related question for the Accountants regarding interest free loans to directors (asking generally to avoid any issues but I think we all know what I'm referring too).

If a director of a company gets an interest free loan that is clearly stated in the company accounts I think we can assume three things a)It is a legal payment b)It is all above board and not hidden c)It has been approved at boardroom level by all major shareholders

My questions are...

From an accounting point of view what is the benefit of providing an interest free loan rather than paying a higher basic salary ?

How does the tax man calculate the value of this benefit ? For example if the director gets an interest free loan of £100k then this could be worth £5k a year assuming an interest rate of 5% or £10k a year if you assume an interest rate of 10% ?

Is this type of loan to directors common within Limited companies ?

What tax will the director have to pay on this loan ?

I have two reasons for asking these questions, firstly as a director in my own limited company I spoke to my accountant a few years ago and asked him if I was allowed to give myself an interest free loan from the company, he told me I could but the tax I would have to pay would be more than the interest I would "save". Secondly Im fed up with all the GP Haters constantly bringing up this interest free loan as if it something dodgy and backhanded.

First of all, I agree with your accountant!. Answering your Q's in the same order as follows:

1 No benefit!. I would think that I am correct in saying that this is a hang up from pre FB, in that, GP withdrew funds from QPR with the expectation of tidying things up with the accountant at year end (nothing sinister, and very commonplace here). However, FB incoming, has either not been given any advise regarding the matter, or has descided (more likely option) to leave it as a loan from the Company to GP, thereby having a hold over him for the money. This will either need to be left outstanding, or repaid, or written off - all with different tax consequences.

2 Your summary is quite correct.The tax treatment for an employee / director in this case; HMRC will treat GP as having remuneration equivelent to the interest (tax man sets the rate) on the amount loaned. This notional interest is then taxed and GP will have the tax liability.

The Company will have to pay a notional tax of 25% of the value of the loan. This notional tax will only be repaid once the loan is repaid. This is very inefficient, and is designed by the tax man to be so, in order to dicourage these sort of loans.

3 This is not common for any of my (or your accountants clients) as we would sort these issues out before finalising the accounts. However, it does occasionally happen, but I would always try to avoid it.

4 As mentioned above at point 2) tax is payable on the notional interest.

[ChelmsfordRs]

First of all, I agree with your accountant!. Answering your Q's in the same order as follows:

1 No benefit!. I would think that I am correct in saying that this is a hang up from pre FB, in that, GP withdrew funds from QPR with the expectation of tidying things up with the accountant at year end (nothing sinister, and very commonplace here). However, FB incoming, has either not been given any advise regarding the matter, or has descided (more likely option) to leave it as a loan from the Company to GP, thereby having a hold over him for the money. This will either need to be left outstanding, or repaid, or written off - all with different tax consequences.

2 Your summary is quite correct.The tax treatment for an employee / director in this case; HMRC will treat GP as having remuneration equivelent to the interest (tax man sets the rate) on the amount loaned. This notional interest is then taxed and GP will have the tax liability.

The Company will have to pay a notional tax of 25% of the value of the loan. This notional tax will only be repaid once the loan is repaid. This is very inefficient, and is designed by the tax man to be so, in order to dicourage these sort of loans.

3 This is not common for any of my (or your accountants clients) as we would sort these issues out before finalising the accounts. However, it does occasionally happen, but I would always try to avoid it.

4 As mentioned above at point 2) tax is payable on the notional interest.

Thanks for taking time to reply QPRDad