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Directors’ Loan Accounts – what you need to know

May 28, 2021

A director’s loan refers to when you or another close relative receives money from your company that is not a salary, dividend or expense repayment, or money you have paid into or loaned the company in the past. 

To keep track of this money, you need to record anything you borrow from or pay into your company, known as a Director’s Loan Account.

Additionally, at the end of your company’s financial year, you must note any money owed to the company or vice versa on your balance sheet in your annual accounts. 

Are Directors’ Loans subject to tax?

If you are a director, you may have to pay tax on director’s loans, and your company may also have to if you are a shareholder, also known as a participator, as well as a director. 

Both your personal and company tax liabilities depend on whether the Director’s Loan Account is in credit (the company owes you money) or overdrawn (you owe the company money).

Please note, you will also need to check if you have additional tax responsibilities if the director’s loan was over £10,000 and if you paid your company interest on the loan below the official rate.

Plus, if you lend your company money, it will not be subject to Corporation Tax on that money. 

If you decide to charge your company interest on a loan, it counts as a business expense and personal income for you. Therefore, you must report this on a Self-Assessment tax return. Then, your company needs to pay you the interest less Income Tax at the basic rate of 20 per cent, plus report and pay the Income Tax every quarter using a CT61 form. 

For more in-depth help and advice on Directors’ Loan Accounts, please contact our Knights Lowe experts today. 

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