Directors’ loans – tax consequences for the director

An overdrawn director’s loan account is created when a director (or other close family members) ‘borrows’ money from their company. Many companies, particularly ‘close’ private companies, pay for personal expenses of directors using company funds. Where these payments do not form part of a director’s remuneration, they are usually posted to the director’s loan account (DLA).

The DLA can represent cash drawn by a director as well as other drawings by a director (including personal bills paid by the company). Whilst it is quite common for small company accounts to show an overdrawn position on a DLA, this can create some unwelcome consequences for both the company and the director. The rules are further complicated if the loan is for more than £10,000 and the loan must be reported on your personal Self Assessment tax return. There are also further income tax costs if the loan is written off or ‘released’ (not repaid) by the company.

Planning note:

Small business owners need to be mindful that withdrawing funds from their company in this way can have unwanted tax consequences. The CT, Income Tax and National Insurance impacts of using a DLA must be carefully considered. Please call if you have concerns in this area.

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