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HMRC internal manual

Employment Income Manual

The benefits code: beneficial loans: interaction between employment income and other tax charges: director's current or loan accounts with a close company

When reviewing a director’s current or loan account with a company, an Inspector shouldbear the following in mind.

  • If the directors own all the share capital of the company and either formally or informally decide that sums being withdrawn by them from the company are remuneration, or on account of remuneration, the withdrawals are not loans. PAYE should be applied at the time of the withdrawal. Withdrawals are assessable as remuneration in the year in which they are received (see EIM42270).
  • If the directors make withdrawals that are not remuneration or on account of remuneration, the withdrawals may put the directors in debt to the company. If they do, charges on beneficial loans may arise unless they fall within one of the exemptions (see EIM26132).
  • Interest paid on a debt incurred by overdrawing an account, or under similar arrangements, does not qualify for relief under Section 353 ICTA 1988 (see Section 353(3)(a) ICTA 1988). Whilst this provision is more commonly applied to bank overdrafts, it applies equally to a director’s overdrawn current account with his or her company. It follows that no part of the interest or notional interest on an overdrawn current account will be eligible for relief under Section 353 ICTA 1988 irrespective of the use to which the money is put.