It is not clear from the company\’s accounts how much Hoy could have saved in tax, although a salary of £325,000 would have been liable for tax of about £147,000. But the calculations are likely to have been more complex than that.
Richard Godmon, of accountants Menzies – which specialises in owner-managed businesses – said: \”Directors\’ loans can be a tax-efficient way of accessing funds over the short term.\”
However, he added that if you borrow from your company you are taxed as if it were an employee benefit.
HMRC assumes you would have paid 4% interest on the loan if you had borrowed it on the open market, so a 50% taxpayer has to pay a 2% tax charge every year.
The company making the loan must also pay 25% of the loan amount to HMRC, which is reimbursed when the loan is repaid by the individual. Directors could still technically avoid repaying loans – and therefore tax – by dissolving their company, as once it is struck off from Companies House all balances due to the company cease to exist.
However, HMRC can strike off applications if it feels there is still tax to be paid.
Last year HMRC introduced new \”disguised remuneration\” rules. It said: \”The objective of this legislation is to prevent the avoidance or deferral of income tax and NICs [national insurance contributions] on employment income.
\”It will impact on employers and intermediaries who use trusts or loans to reward employees with a view to avoiding or deferring paying tax and NICs.\”
It rather sounds like this is a \”problem\” that has already been dealt with then.
Without, you know, entirely changing the basis of tax law as certain retired accountants would wish.