What is a Directors Loan

Knowledge base from Boox

By Lynne Gowers on 6th February 2014

What is a Directors Loan

As a limited company director, you have full control and responsibilities for your company’s finances.  If you choose to withdraw monies from your company which is not classed as salary or dividends, you have received the benefit of a Directors Loan, as essentially the money was not yours to withdraw – it belongs to the company.

The company is therefore seen to be lending you money, which in turn you need to pay back, just like any other loan.

Ins and outs of a Directors Loan

However, taking and repaying a Directors Loan isn’t as simple as you’d think. Whether your company needs to notify HMRC of the outstanding loan, which has the potential for additional tax liability, depends on how much is taken and when the loan is repaid to the company.

Here’s a few examples where a Directors’ Loan may incur additional tax:

  • A directors’ loans that exceed £5,000 in a tax year attract ‘Benefit in Kind’ tax that you need to pay personally.
  • Loans that are not paid back by the due date incur extra company tax at a rate of 25%.

The main way to ensure you don’t incur an additional tax bill is to ensure that the Directors Loan is repaid to your company before the end of your Corporation Tax period.  This also ensures you don’t need to tell HMRC about the loan.

Paying off a director’s loan

If you’ve taken a loan from your company, this can be repaid by either;

  • repaying money back into the company’s bank account
  • the company crediting the director’s loan account with a payment – for example a dividend, salary or bonus

Always check with your accountant before withdrawing funds from your business which are not covered by our pay breakdown.

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