Directors’ loan accounts and Corporation Tax explained

If you’re a company director or ‘participator’ and take money out of your company that’s not a salary or a dividend – over and above any money you’ve put in – you’re classed as having received the benefit of a director’s loan.

If your director’s loan account is overdrawn, your company must pay tax on any amount you’ve not repaid by nine months after the end of your Corporation Tax accounting period.

If you’re a company director (or other participator of a close company) and take money out of the business over and above any money you’ve put in, and that money is not a salary, dividend or reimbursement for a business expense, then the money is not yours – it belongs to the company. You’ve received the benefit of a director’s loan from your ‘director’s loan account’.

You lend money to your company: director’s loan account in credit

If you lend your company money (for example by paying money into your company’s bank account as opposed to, say, buying shares) your director’s loan account is in credit.

You can draw some or all of this money out at any time. There are no tax implications for your Company Tax Return.

Your company lends money to you: director’s loan account in debit or overdrawn

If you take money out of your company’s bank account over and above money you’ve loaned to the company – and that money is not a salary or a dividend – then it’s a loan from the company to you. Your director’s loan account is overdrawn.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *