Is this legal - Directors loan account

[pollyann31]

Does anybody know if it is legal for a director/owner of a Ltd Co to pay a member of their family ( their teenage son) a payment through the Company via a directors loan account. this is so no paye or nic has to be paid and this is not being declared to HMRC

 

thank you

[Gbarbm]

Is the son an employee or director of the company?

 

The whole purpose of a directors loan account (DLA) is because the director has loaned the company money and recoups their investment via the DLA

Wages (whether their own or someone elses) can be withdrawn from the DLA but tax and NI should be deducted as normal.

[Conniff]

Isn't this what Ken Livingstone and Boris whatsit were on about in the Radio London chat, accusing each other of avoiding tax by being paid through a company? If they can do it, then I would think it is legal.

[pollyann31]

Hello Gbarbm

No, the son is not an employee nor a director of the co. he is 19. Money is just trf straight into his account

Edited April 30, 2012 by pollyann31
worried i put too much info

[Gbarbm]

I take it the Company accountant maintains the DLA and prepares a chronological analysis of the credits/debits so that details can be entered on the CT600.

I thought that the son was an employee but as he isn't the director can withdraw amounts for any purpose and as long as the DLA is in credit, then there are no implications other than the fact that the director should charge the company interest and declare it on his SA return.

If the account goes overdrawn by more than £5K at any time during the tax year, then a beneficial loan has arisen and section 175 interest would be chargeable ( as well a section 419 interest for CT purposes)

[pollyann31]

Thank you.