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Free Guides for new and growing businesses from HRBS - fixed fee accountants and business advisors

Loans to directors

loans to directors Loans to directorsThe good news … a company can loan a director up to £10,000 without shareholder approval.

The bad news … HMRC consider interest free loans to directors as benefits in kind.

Where the loan (or total if more than one loan) is over £10,000 the benefit (interest), calculated at the HMRC official interest rate (currently 2.5% pa) is taxable and must be reported on form P11d by 6th July and included in the director’s personal tax return.

If the director pays the company interest (minimum 2.5% pa), there is no benefit in kind.

The loan must be repaid within 9 months after the company’s year end, otherwise the company must pay HMRC 32.5% of the outstanding balance of the loan. This is obviously not good for the company’s cashflow. Further information is available on HMRC’s website.

If done correctly, loans to directors are a useful tax planning exercise and are often used for home deposits, weddings, unforeseen expenses such as boiler repairs etc . The loans are repaid using dividends and as mentioned on other guides here at tips.HRBS.biz , the company must have sufficient profits (after tax and all costs) to pay dividends, so taking advice is essential before borrowing from your company.

[article updated 01 August 2019]

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