If you take money from your company that isn’t a salary or a dividend, it’s known as a director’s loan. You and the company may have to pay tax on the amount.
You must keep a record of any money you borrow or pay into the company – this record is known as a ‘director’s loan account’.
Your personal and your company’s tax responsibilities depend on whether the director’s loan account is:
- Overdrawn – you owe the company
- In credit – the company owes you
It also depends on whether the loan is repaid or written off.
If the loan account is overdrawn
If you owe your company more than £5,000 at any time
The loan is classed as a ‘benefit in kind’ and you may have to pay National Insurance on the amount.
If you pay interest on the loan under the official rate, you must report it on your Self Assessment Tax Return – you may have to pay tax on the ‘missing’ interest.
If the account is overdrawn at the end of the financial year
You must show the amount in the director’s loan account in your Company Tax Return.
If you don’t repay what you owe within 9 months and 1 day of the company’s financial year-end:
- The company must pay 25% of the value of the loan as Corporation Tax
- HM Revenue & Customs (HMRC) will charge the company interest on the amount still owed
Once you’ve repaid your loan, your company can claim back any Corporation Tax it paid on the amount.
Claims must be made within 4 years (6 years if the loan was repaid on or before 31 March 2016).
For claims within 24 months of the end of the financial year that the loan was repaid, amend the Company Tax Return for that year. After 24 months, make a separate claim by writing to HMRC when the next Company Tax Return is sent.
If the loan is written off
If your company lends you money and then writes it off (meaning you don’t have to pay it back), the loan counts as your personal income. You won’t have to pay tax on the amount (unless you’re a higher rate taxpayer), but you’ll owe Class 1 National Insurance.