Directors Loans

Any loan from your company above the £10,000 is a benefit in kind and taxed accordingly ie subject to personal income tax AND National Insurance.

The loan can run and run if the client wishes, but if it is not repaid within 9 months of the Company year end (and that includes loans under £10,000), then there will be a charge of 25% of the outstanding loan payable to the HMRC as additional corporation tax. This additional not repaid by them until 9 months after the end of the accounting year in which it is repaid.

It doesn’t matter if the loans are not documented – they simply are loans by virtue of the fact they are not salary or dividends. It is therefore far more tax effective (and a lot less messy) if funds are drawn from the company as salary and/or dividends. All expenditure incurred by the company must be for the company’s business purposes. Any private expenditure incurred by the directors or employees on items such as general shopping, petrol, holidays, non-business travel, childrens school fees etc etc are not items of business expenditure and are subject to tax and National Insurance as Benefits in Kind as well as being subject to Corporation Tax as explained above.

The above should be born in mind when directors submit their P11d (deadline 19 July each year).


By graeme on May 6, 2011

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