Loans to directors – form p11d
It is illegal under current company law for companies to make loans to its directors unless it is an advance to pay company expenses. The loan must also be approved by the shareholders and repaid within 6 months. HMRC consider loans to directors as benefits in kind and the interest chargeable at the HMRC standard rate is taxable and must be reported on form P11d by 6th July. Fines are chargeable by HMRC if the forms are not received by 19th July.
Furthermore, if the loan is not repaid within 9 months after the year end, the company must pay corporation tax on the loan which will only be refunded if the loan is repaid. Unfortunately the tax is not actually refunded as it is offset against the company’s corporation tax liability for the accounting period in which the loan is repaid. This is obviously not good for the company’s cashflow.
However, if the loan is below £5000, then under current HMRC rules, no benefit in kind applies.
