Can I use a director's loan to offset my mortgage?

January 12, 2010 2:36 AM

Can I increase the 'offset' (e.g. savings) part of my offset mortgage, using funds that I keep in a company account to pay corporation tax, if I take these funds out as a Director's Loan and repay the loan when corporation tax is due? I'm in the UK and intend this to be entirely above board.

I have an offset mortgage with an outstanding mortgage of £115,000 and at any one time about £18,000 in savings. These reduce the interest by a considerable amount, helping us to overpay the principal by a few hundred pounds a month.

I'm a one-man limited company and in one of my company accounts I put aside money to pay corporation tax. During the year this builds up to about £15,000 and for nearly six months of the year this just sits there not really earning interest.

Can I take this from the business as a legitimate director's loan and then repay it when I need to write the cheque for corporation tax? Would HMRC expect me to make interest payments or can the loan be interest free? Or am I just waving a big 'investigate me!' flag?

I know you're not my tax accountant. I'll call him as the next step.

posted by dowcrag to Work & Money (2 answers total)

IANAA, but I've always seen this as an acceptable thing to do. You've not allocated this as drawings / compensation / dividend on the books; it's just like having it in another bank account. If you would be allowed to hold this money in a safe, what's to stop you from holding it in your own account offsetting until the time you put it back. I am not sure why you would even feel compelled to treat this as a loan. I am not sure how HMRC would come to know about it if it all happened "off balance sheet", so to speak.

I have thought about doing exactly this, but right now interest rates are so low that the benefit from offsetting is pretty small. I note that I am in a limited partnership arrangement rather than limited company, but I can't imagine the requirements would be different.
posted by sagwalla at 5:36 AM on January 12, 2010

Best answer: This counts as a benefit in kind.
posted by devnull at 6:02 AM on January 12, 2010