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HMRC internal manual

National Insurance Manual

NIM12016 - Class 1: Calculating Class 1 NICs for Directors: Directors loan accounts: Background

Regulation 22 SSCR 2001

A director’s loan, or current account, with his or her company represents from thecompany’s viewpoint transactions between the company and the director. It is like abank account in that it can be in credit (‘cr’ or what the company owes to thedirector) or in debit (‘dr’ or what the director owes to the company). Similarlythere might be an agreement to pay interest, in either direction, depending on whether theaccount is in credit or overdrawn. Unlike a bank account however, the value of items otherthan cash can be debited or credited. For example, the account might reflect

  • the transfer of ownership of any personal asset to the company, or
  • the transfer of ownership of any business asset to the director, or
  • the entitlement to dividends from the company
  • payment by the company of personal expenditure
  • payment by the director of business expenditure
  • remuneration voted
  • loans to the director
  • repayment of loans by the director.

If an asset is transferred, the value shown is that placed on it by the company and isnot necessarily the open market value at the date of transfer. The company should alwayshave a record of the transactions with its directors. The balance at the end of thecompany’s accounts year will be shown in the balance sheet to the statutory accounts.The balance might be either specifically identified or be part of other creditor or debtorbalances. The following is a simple summarised example of a loan account, for a companywith a 31 January accounts year-end:

Date £(DR) £(CR) Comment
1/2/99   60000 Credit Balance owed by company to director at 31/1/99
Various Dates   3000 Business expenses paid by director
10/2/99 6000   Cash withdrawn
28/2/99   5000 Value of car transferred to company
28/2//99–31/1/00 48000   Monthly cash withdrawals of £4000
19/9/00   12000 Interim dividend for y/e 31/1/00
Various dates 15000   Personal expenses on company credit card
31/1/00   85000 Remuneration voted for y/e 31/1/00
31/1/00 96000   Credit Balance at 31/1/00