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It’s a New Tax Year. So What’s New is the Lowering of the Official Rate of Interest

The last tip was to signal the doubling of the de minimis for cheap employer loans.

Today, I want to celebrate the reduction in the rate of interest payable on these loans when you breach that de minimis.

Used to be 4%.  From 6th April, it is 3.25%.

This is of particular value for anyone drawing from their personal company at a level at which the tax on dividends is not nice.  No-one likes paying 25% higher rate tax on dividends and fewer still will enjoy 26.375% additional rate and who wants to go beyond £50,000 where you lose family allowance and £100,000 where you lose personal allowance.

There are plenty of reasons why you would not want your drawings to be classed as dividends.  If that is you, then why not treat the excess that you don’t want as a loan from the company?  If it goes over £10,000 then you pay 3.25% interest to avoid the personal tax charge and the company pays 20% tax on receiving that interest.  The result is that you have no tax to pay and the company pays 20% of 3.25% = 0.65%.  Now that is a much nicer rate of tax!

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