A director’s loan is when you (or other close family members) take money from your company that isn’t a salary, dividend or expense repayment and you’ve taken more than you’ve put in.
You may have to pay tax on the loan. Your company may also have to pay tax if you are a shareholder (also called a ‘participator’) as well as a director.
You must keep a record of any money you borrow from or pay into the company - this record is usually known as a ‘director’s loan account’.
Your personal and your company’s tax responsibilities depend on whether the director’s loan account is:
- overdrawn - you owe the company
- in credit - the company owes you
You owe your company money
|Situation||Your company’s responsibilities if you’re a shareholder and director||Your personal responsibilities as a director’s loan recipient|
|You owe your company less than £5,000||No income tax or National Insurance but the company may have to pay Corporation Tax
(see lines 5 and 6 below)
|You owe your company £5,000 or more at any time in the year||Treat the loan amount as a ‘benefit in kind’ - deduct Class 1 National Insurance through the company’s payroll. Company may have to pay corporation tax
(see lines 5 and 6 below)
|Report the loan on your Self Assessment tax return – you may have to pay tax on the loan at the official rate of interest.|
|You pay your company interest on the loan below the official rate||Record the interest as company income and treat the discounted interest as a ‘benefit in kind’||Report the interest on your Self Assessment tax return - you may have to pay tax on the difference between the official rate and the rate you paid|
|The loan is ‘written off’ or ‘released’ (it doesn’t need to be repaid)||Deduct Class 1 National Insurance through the company’s payroll||Pay Income Tax on the loan through your Self Assessment tax return|
|Repaid within 9 months and 1 day of the end of the company’s financial year||Show the amount owed at the end of the financial year in your Company Tax Return||No responsibilities|
|Not repaid within 9 months and 1 day of the end of the company’s financial year||Pay 25% of the outstanding amount as Corporation Tax.
Interest on this Corporation Tax will be added until the Corporation Tax is paid or the loan is repaid.
You can reclaim the Corporation Tax - but not interest (see below).
Reclaiming Corporation Tax on a director’s loan account
You can reclaim the Corporation Tax - but not interest - from 9 months and 1 day after the end of the accounting period in which the loan was repaid.
If you’re reclaiming within 2 years of the end of the corporation tax accounting period the loan was taken out, amend the Company Tax Return for the relevant accounting period. Your company will be repaid automatically.
Your Corporation Tax accounting period is normally 12 months, and will usually be your company’s financial year.
If you’re reclaiming later than 2 years, write to your company’s Corporation Tax office after you’ve sent the Company Tax Return that shows the loan has been settled or written off.
You must claim within 4 years (or 6 years if the loan was repaid on or before 31 March 2010).
You lend your company money
If you lend your company money without charging interest, you’ll have to report it on your Company Tax Return.
If you charge your company interest on the loan, the interest counts as both:
- a business expense for your company
- personal income for you
You must report the income on your personal Self Assessment tax return.
Your company must:
- pay you the interest less Income Tax at the basic rate of 20%
- report and pay the Income Tax every quarter using form CT61
You can request a form CT61 online, or call HM Revenue and Customs’ (HMRC) Shipley Accounts Office.
HMRC Shipley Accounts Office
Monday to Friday, 9am to 5pm
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