Kirkpatrick & Hopes - Succession Planning Accountants

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Paying interest on directors loans is better than dividends now

The new 32.5% rate on dividends received by higher rate taxpayers means paying interest on directors’ loan account credit balances is now more tax efficient than paying dividends, once the new £5,000 dividend allowance has been used.

This will also avoid the accounting issue mentioned above if a market rate of interest is paid.

Unlike bank interest the company is still required to deduct 20% basic rate income tax and pay this over to HMRC quarterly with form CT61. Remember that higher rate taxpayers can receive £500 interest income tax free from 6 April 2016.

Andy Scott

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