Sorry if this is a stupid question but if a client has an overdrawn DLA at year end, but subsequently reduces it by crediting his salary to the DLA, is the tax payable based on the balance in the DLA 9 months after year end or that at the year end? I know that if it's cleared completely within the time period there's no tax to pay.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Hi John
No question is a stupid question. Although sometimes questions get 'answered' with more questions and for that I apologise.
Im taking it that the salary reducing the DLA was the salary after the year end, as opposed to not physically taken all year and an in year adjustment and assuming the loan cannot be cleared by a divi.
Have you charged (commercial rate of ) interest on the loan? You can build that in by way of adjusting entries before you finalise.
Hi Joanne. No, its future salary to reduce the outstanding dla before the 9 months. Lets say for instance that is DLA is £8k overdrawn at the end of the financial year, and £3k of salary put to the DLA between now and the end of the 9 months, would tax be due on £8k or £5k?
Yes, interest has been charged.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Hi John
Sorry I said commercial rate, I shouldve mentioned HMRC official rate. Below that and a BIK arises, unless the loan is less than £10k then that wouldnt be an issue.
My understanding is that the tax is calculated as at the balance at the end of the period, so it would be at the full £8k, but relief can then be gained for the partial payment within the next Accounting period. The toolkit probably explains that in better detail.
