What is a Directors Loan?
A director’s loan is when you (or other close family members) get money from your company that is not:
- a salary, dividend or expense repayment
- money you’ve previously paid into or loaned the company
Records you must keep
A director’s loan account is usually used to keep track of money that you borrow from or pay into the company.
At the end of your company’s financial year
Include any money you owe the company or the company owes you on the ‘balance sheet’ in your annual accounts.
Tax on loans
You may have to pay tax on director’s loans. If you are both a shareholder (sometimes called a ‘participant’) and a director, your company may have to pay tax.
Your personal and company tax responsibilities depend on whether the director’s loan account is:
- overdrawn – you owe the company
- in credit – the company owes you
If you owe your company money
You or your company may have to pay tax if you take a director’s loan.
Your personal and company tax responsibilities depend on how the loan is settled. You also need to check if you have extra tax responsibilities if:
- the loan was more than £10,000 (£5,000 in 2013 to 14)
- you paid your company interest on the loan below the official rate
If the loan was more than £10,000 (£5,000 in 2013-14)
If you’re a shareholder and director and you owe your company more than £10,000 (£5,000 in 2013 to 2014) at any time in the year, your company must:
- treat the loan as a ‘benefit in kind’
- deduct Class 1 National Insurance
You must report the loan on a personal Self Assessment tax return. You may have to pay tax on the loan at the official rate of interest.
If you paid interest below the official rate
If you’re a shareholder and director, your company must:
- record interest you pay below the official rate as company income
- treat the discounted interest as a ‘benefit in kind’
You must report the interest on a personal Self Assessment tax return. You may have to pay tax on the difference between the official rate and the rate you paid.
Reclaim Corporation Tax
Your company can reclaim the Corporation Tax it pays on a director’s loan that’s been repaid, written off or released. You cannot reclaim any interest paid on the Corporation Tax.
Claim after the relief is due – this is 9 months and 1 day after the end of the Corporation Tax accounting period when the loan was repaid, written off or released. You will not be repaid before this.
You must claim within 4 years (or 6 years if the loan was repaid on or before 31 March 2010).
Reclaiming within 2 years
If you’re reclaiming within 2 years of the end of the accounting period when the loan was taken out, use form CT600A to claim when you prepare a Company Tax Return for that accounting period or amend it online.
Use form L2P with your Company Tax Return instead if either:
- your tax return is for a different accounting period than the one when the loan was taken out
- you’re amending your tax return in writing
Tell HMRC how you want the repayment in your Company Tax Return.
Reclaiming after 2 years
If you’re reclaiming 2 years or more after the end of the accounting period when the loan was taken out, fill in form L2P and either include it with your latest Company Tax Return or post it separately.
HMRC will repay your company by either:
- using the details you gave in your latest Company Tax Return
- sending a cheque to your company’s registered office address
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