What’s the best way to repay a director’s loan?
As a director shareholder if you’ve borrowed money from your company which you still owe when its financial year ends, it will have to pay a tax charge equal to 32.5% of whatever remains owing nine months later. HMRC will refund the tax after the end of the financial year in which the debt is repaid. Also the tax charge can be avoided if the debt is cleared within the nine-month period.
The most tax-efficient way is for your company to declare a dividend and instead of paying it to you, it’s used to clear your loan. However, your company must have accumulated enough profits to pay a dividend. As an alternative, your company could simply write off the debt. This is usually equally tax efficient.
Are you missing out on pension contribution relief?
If you pay income tax at higher rates and pay pension contributions from your own funds, you are entitled to extra tax relief on the contributions. To get the extra relief you must submit a claim to HMRC.
If a pension plan is for contributions of £100 per month, you pay £80 and HMRC pays £20. If you’re a basic rate taxpayer that’s the end of the matter, but not if you’re liable to tax at a higher rate. You’re entitled to tax relief at the highest rate of tax you pay, but you must ask HMRC for it.
To obtain higher/additional rate tax relief for your contributions you must claim it each year on your tax return or by writing to HMRC giving amounts and details of your contributions.
Isolation support payments
If you receive a coronavirus self-isolation support payment you must declare it to HMRC as taxable income. If you’re an employee include it as a benefit from employment. If you’re self-employed include it as business income in your accounts.