It is always a question of fact based on all the evidence
available whether a withdrawal is a loan, earnings or a payment on
account of earnings. The clearance of an overdrawn amount by
remuneration voted is an indication that regulation 22 SSCR 2001
might apply.
If the directors own all the share capital of the company and
either formally or informally decide that sums withdrawn by them
from the company are earnings, or on account of earnings, the
withdrawals are not loans. NICs (and PAYE) should be applied at the
time of the withdrawal.
Whether or not the directors own all the share capital, it
might not be straightforward to find that there has been an
informal decision to treat withdrawals as on account of earnings.
At one end of the scale there is a strong inference that there has
been such an agreement when
If the pattern has existed for more than the year under enquiry,
the inference will be stronger. If there is no such pattern, the
inference will be weaker.
At the other end of the scale, it will be difficult to show
regulation 22 applies if the director receives a regular salary
(not credited to the loan account) supplemented by a bonus, which
is only payable if certain performance indicators are achieved.
In the example at
NIM12016 it could be claimed that the
regular monthly cash withdrawals are withdrawals on account of
earnings. However the director’s opening credit balance is
such that it would be very difficult to prove that the withdrawals
are not repayments of loans without other facts to substantiate the
claim. But if the opening balance were, say, £150, the account
would have been overdrawn from a very early date in the accounts
year. There is then more evidence to a claim that the monthly cash
withdrawals are advance payments of earnings within regulation 22.
The same reasoning will apply to the consideration of whether
the personal expenses paid by a company credit card are
earnings.
