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Directors loan

  • 06-02-2021 8:03pm
    #1
    Catglee
    Registered Users Posts: 43 ✭


    Husband (who is a director and has equity in the Co.) has been told by his boss that the company would be happy at any time to give him a zero interest loan.
    Are there any tax ramifications?

    Thinking of taking one and clearing the mortgage.


Comments

  • #2
    ari101
    Registered Users, Registered Users 2 Posts: 2,835 ✭✭✭ari101


    Preferential rate loans attract Benefit In Kind. He would be liable for tax on the difference between the Revenue rate (4% assuming this is considered a qualifying home loan, 13.5% if not) and actual rate.

    e.g. Interest free 100k for home = 100k @4% = 4k - tax on 4k at 52% assumed = ~2k tax per annum assuming no repayments, if repayments are made the tax reduces.

    https://www.revenue.ie/en/employing-people/benefit-in-kind-for-employers/other-benefits/preferential-loans.aspx

    However there are other points to note as he is a director and part owner.

    Directors duties and company law: Company can only make loans up to 10% Net Assets total to directors (combined total of loans made to all directors).
    As a director he has a responsibility to make sure loans stay with in the legal limit until repaid.
    In the example above 100k loan would need 1m+ Net Assets assuming no other loans in issue.

    Corporation Tax: The company will have to pay 25% CT on the loan in the return for the year in which it was made (unless repaid shortly post year end). The company will get the CT back when the loan is repaid. So 100k * 25% = 25k company has to pay with annual CT. Will be refunded only when payments are made (can be over multiple years e.g. if 20k repaid annually will be able to claim 5k CT back each year).


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