# Directors Loan / Preferential Loan - Basically Taking a Loan From The Company



## Strongback (16 Mar 2012)

I own a small business and have managed to build up some funds in my business bank account mainly because I keep my wages very low.

I am considering buying a house that would be my principle primary residence and I am wondering if there is a way I can use the company funds to give myself a loan in order that I will can self finance the house purchase.

My question: Is it possible to pay myself a Directors Loan or a Preferential Loan without the requirement to pay PAYE/PRSI on the money taken from the company as a loan.


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## mandelbrot (17 Mar 2012)

This is a topic that's been discussed in detail lots of times if you browse on here a bit...

The simple answer to your question is yes and no... i.e. there isn't a simple answer.

Yes you can have a loan from the company without deduction of PAYE/PRSI on the actual loan,   but there are other requirements, which may be equally unpalatable.

There are also Company Law requirements to be considered; the general   rule is that a company cannot loan a director more than 10% of its net   assets, so this will impact on how much you can lawfully be loaned by  the company.

As regards the tax implications, where a close company makes a loan to a   participator, it is deemed to do so under deduction of income tax at   20% - i.e. the amount loaned is deemed to be 80% of the total. Therefore   if the company loans you 100k, when it files its Corporation Tax  return for that period  it must pay over the tax withheld i.e. 100k x  20/80 = 25k. This 25k isn't lost entirely, as it can be reclaimed by the  company when the loan is repaid by the director - if you repay 20k of  the loan next year, then the company can reclaim 20/100 of the 25k...

If the loan is interest free, or at any rate below a specified rate   (12.5%) then there is a benefit in kind for the director, to be taxed as   follows  (http://www.revenue.ie/en/tax/it/leaflets/benefit-in-kind/loans.html#section3): _"PAYE  and PRSI are to be applied to the difference between the amount of   interest paid or payable on the preferential loan in the tax year and   the amount of interest which would have been payable in the tax year if   the loan had been subject to the specified rate"._

So again in the example where the company loans you 100k, if you aren't  paying interest to the company then it will be obliged to operate  PAYE/PRSI on an additional 12,500 of notional income annually, until /  unless you start reducing the loan balance.

If your only means of repaying the loan is with money drawn as salary  from the  company under deduction of tax, then clearly the whole thing  is very tax inefficient. If you borrow 100k from the company, and pay it  off over 10years, at 10k p.a. out of of additional net salary, then I  calculate that additional PAYE/PRSI of 64k will be paid over that  period, and that assumes that you will only ever be paying tax at the  standard rate (plus PRSI & USC).


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## Strongback (17 Mar 2012)

Thanks mandelbrot for the detailed response and for explaining things simply. I have been reading different threads on the subject but to me there always seems to be a slightly different twist than my situation and on top of that financial speak can be a little baffling to me.


The money I would need to take from the company bank account would exceed 10% of the companies assets so can I assume this rules out a company loan?

I can also look at paying myself a lump sum and paying the PAYE/ PRSI/ USC. If I am going to make the house purchase I will need to pay myself a €60k lump sum wage after PAYE / PRSI / USC has been deducted. The €60k would be added to my personal savings to make the purchase.  I have around €90k in the company bank a/c but this is not enough for me to pay myself a €60k lump sum take home wage.

I reckon I would need something like €110k in the account to take out €60k in post tax wages.


I could take out €60k and pay €30k to the Revenue right now and pay the remaining €20k or so to the Revenue over the next 4 or 5 months from my monthly wages.


Would doing this raise a red flag?


I have looked into getting a mortgage through a broker but have been advised I wouldn't get a loan in the next 6 to 12 months.


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## sean.c (20 Mar 2012)

Talk to your accountant.

I take it that you have a direct debit paying PAYE/PRSI monthly?  

As far as I know, as long as you balance up before the end of the year, Revenue won't worry.  It's easily explainable that you had to pay yourself a bigger salary one month than normal.  AFAIK they don't like discrepencies of more than 10% at the end of the year.

You can make additional payments to the Revenue by calling up the collector general unit or filling out a form.

I'm just throwing this out there - I've no idea if it's possible or advisable - Have you considered buying the house via the company or some other structure?


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## DB74 (20 Mar 2012)

Under no circumstances should you buy the house via the company

Company goes bust - you're homeless


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