There may be times when a director needs to borrow money from their own limited company. From an accounting perspective director loans are treated as follows:
- Loans outstanding at the balance sheet date must be disclosed in the company’s financial statements and corporation tax return.
- Loans not repaid within 9 months of the year end trigger an additional temporary corporation tax charge at 25% of the loan value. When the loan is repaid this additional charge may be reclaimed from HMRC 9 months after the end of the accounting period in which it is repaid.
- If a loan is repaid and then taken out again shortly afterwards HMRC will see through this and tax the loan as if it had never been repaid.
- Loans over £10,000 will be treated as a benefit in kind and the company must deduct NI through the payroll. No benefit in kind will however arise if the director pays interest on the loan at HMRC’s official rate.
Please also note that any borrowing must in the first place be permitted by the company’s Articles of Association and appropriately approved.
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