Directors’ loans are loans from your company which aren’t expense repayments, salaries or dividends and involve you taking out more than you put in. You are obliged to keep records of all monies borrowed from and paid into your Company as a ‘director’s loan account’. Amounts owed to the director by the company need to be recorded as a creditor in the books, with money due to the company from the director being recorded as a debtor.
Loans may be needed for a wealth of reasons, including major purchases like property. All directors’ loans require company shareholder approval, especially those of over £10,000. Should you take out a director’s loan, you will need to ensure the account retains enough money to cover liabilities such as Corporation Tax. The process will be simpler should you be the only director and shareholder of your company.
Your responsibilities regarding personal and company tax will depend on whether the director’s loan account is overdrawn or in credit. Your responsibilities may differ if the loan is classed as a benefit in kind. Should the loan be in excess of £5,000 at any point, a benefit in kind will need to be calculated on the P11D director’s form. There will be no benefit in kind if the director is paying the market rate of interest on the loan.
The time when the loan is repaid will determine whether you need to inform HMRC about the loan and when tax needs to be repaid on the outstanding amount. The tax is classed as Section 455 CTA 2010 tax rather than Corporation Tax and will be charged at 32,5% of the outstanding amount. The tax on an overdrawn loan can be calculated on your Company Tax Return and added to the Corporation Tax. When the overdrawn loan is repaid partially or in full, then the s455 tax is repayable to the company 9 months and one day after the accounting period in which the loan is repaid.
If money lent to you by the company is written off so you don’t need to repay it, the loan will be treated as personal income. You will only need to pay tax on the amount if you are a higher rate taxpayer, though you will incur Class 1 NI. The field of directors’ loans can be confusing because the balance may not just merely consist of the amount borrowed, but also includes expense claims, salary payslips, expenses and salaries.
Why Perrigo Consultants?
At Perrigo Consultants, we can come to your assistance if you require help with directors’ loan accounting. We can make your company more tax efficient and are able to provide clear, straightforward advice to help you comply with tax regulations and benefit from all the tax-saving opportunities available to you. We offer a range of tax and accountancy services, including business planning, advice and consultancy services, working with a wide range of companies, organisations and professionals from a range of industry sectors.
At Perrigo Consultants, we can help you stay on top of your director’s loan account and take the hassle out of your compliance responsibilities:
Jargon-free advice on directors’ loans
Helping you understand your tax obligations.