Using your company account for personal items
Paying for personal items on your company card?
Q: I've paid for some personal items using my company bank account. If I repay them by the end of the tax year will this affect my tax treatment in any way?
A: Unless these amounts are repaid to the company by the end of your accounting year you will become a creditor (i.e. you will owe money) to your company. In 'accountant speak' you will have an overdrawn director's loan account.
There are three important tax and national insurance consequences to bear in mind:
1. Your company may have to make a corporation tax payment based on the overdrawn balance.
2. Unless you pay an HMRC agreed rate of interest on your loan you may incur a benefit-in-kind charge.
3. If a benefit-in-kind charge does apply, your company will also need to pay Class 1A National Insurance contributions.
You can avoid these charges:
You don't have to pay 25% corporation tax if you repay the overdrawn loan before the end of your business accounting period, or within nine months of this date.
Even if you're unable to repay your loan within the nine-month period, if you subsequently repay the loan you can apply for a refund on the 25% corporation tax (although it will take a while to receive it!)
As long as you have paid interest (at the agreed HMRC minimum rate) on your loan account, there will be no benefit-in-kind charge. If so, your company will also have no Class 1A NIC to pay.
Please contact us for more information about managing the tax implications of directors' loans within your company.