Uploaded by User107124

Directors loan and tax implications

Directors loan and tax implications
Diirector’s loan is when director withdraw money from their company that isn’t related to dividends,
remuneration and benefits. Director must keep a record of any money they borrow from or pay into the
company – this record is usually known as a ‘director’s loan account. If no money is introduced ( in the form
of capital) or taken ( for private use other than dividend , wages and benefits in kind) from a company, a
director’s loan account will be nil. In most cases Directors loan account (DLA) be in credit as directors
invest their own savings into a company to cover revenue expenses or capital expenditures ( buying company
assets such as plant and machinery, motor vehicle, land & buildings or any others assets)
What is Debit & credit in directors loan account ?
Directors loan account in Cr (Credit) :When the Limited company is formed and business is starting up ,
the directors may lend money to the company for initial investment. Where money has been loaned to the
business and the director’s loan account is in credit, the director can draw on the credit balance at any time
without paying any tax. Directors can charge interest to the company on the loan, the director will need to
declare the interest received on his or her personal tax return and pay tax on that interest. Financial planning
London Budgeting and Forecasting London
The company is not liable to pay corporation tax on the amount invested to the company by directors
Directors loan account in Dr (Debit / overdrawn):Director’s loan account in debit describes a situation in
which a director has taken more money out of a company than they have put in, not including dividends or
salaries. A director’s loan account may become overdrawn for various reasons. Director may borrow money
from the company to pay personal bills or purchase personal assets such as house , car and others. Its very
important for us to understand how directors loan has to be treated in the accounts and what are the tax
What are the tax implications on overdrawn directors loan account ?
Tax on overdrawn directors loan account depends on the when loan is repaid. There will be no tax on the
overdrawn loan account if the loan account if paid full or in excess as a result loan is xero or in credit within 9
months of the accounting period end. For example if the company’s accounting period end in March 2020,
overdrawn directors loan accounts has to fully paid and bring the balance to nil or in credit by 31 December
Corporation tax: If the director unable to pay the loan within 9 months, outstanding overdrawn amount will
result additional 32.5% corporation tax. HMRC will release additional tax to the company when director pay
the loan in full.
Personal tax: 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 Benefits 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.
Directors loan account must be disclosed in the financial statements as per companies act which should reflect
Amount of the loan taken Dr/(Cr)
Date of payment if paid within 9 months
Interest rate
Interest amount
Its very important to understand the rules and that transactions are debited or credited to the account at the
time that they are made.
For More Info:- Chartered accountant in Bexley