Director’s Loan Accounts
Transactions between a director and a personal/family company are recorded through the director’s account for accounting purposes. If the director(s) owes the company any money, there will be tax consequences which need to be considered.
A tax charge will arise under s455, CTA 2009 where a director’s loan account is over drawn at the end of the accounting period and remains overdrawn nine month and one day after the end of that accounting period. The charge is calculated as 32.5% of the loan amount and is the liability of the company. Once the loan is repaid by the director the s455 then becomes repayable.
This charge, can however, be avoided if the loan is cleared by the corporation tax due date which is nine months and one day after the end of the accounting period. Some of the ways, this can be done are:
- the company can pay a bonus to clear the overdrawn balance;
- the company credited salary to the director’s account;
- the director introducing funds into the company to clear the overdrawn balance;
- the company declares a dividend to clear the overdrawn balance; or
- a mix of all of the above
There will be tax implications except when the director introduces funds in the company when considering the above options.
For more details on director’s loan accounts contact us.