Directos loan tax implications

[Orangecandle72]

Can someone please explain the tax implications of taking a Directors loan of moren than 10k?

Do I have to pay taxes on it? What If I pay it within a year?

There's some good info here: https://www.crunch.co.uk/knowledge/article/directors-loan-account and on gov.uk https://www.gov.uk/directors-loans

I think the answer is no, you don't have to pay tax provided you repay it within the timeframe, but I would check with an accountant before doing something like this.

Thank you. Trying to make sense of all the information

Just be certain you have a solid plan to repay it. Lots of people get caught out when they can't repay or need to pay themselves a dividend to clear it and then have to pay personal tax on the dividend.

Thank you; it is a bit late, We took it to pay part of the mortgage when we were renegotiating it to reduce interest. Now need to think how to repay it without having to pay too much taxes. Was thinking of the dividend option.

Speak to your accountant - they have all of the information and are the best people to give you advice

Your accountant will be best placed to advise you on this.

https://www.gov.uk/directors-loans/you-owe-your-company-money

Key bits…..

If you’re a shareholder and director and you owe your company more than £10,000 (£5,000 in 2013 to 2014) at any time in the year, your company must:

• treat the loan as a ‘benefit in kind’
• deduct Class 1 National Insurance

You must report the loan on a personal Self Assessment tax return. You may have to pay tax on the loan at the official rate of interest.

If you’re a shareholder and director, your company must:

• record interest you pay below the official rate as company income
• treat the discounted interest as a ‘benefit in kind’

You must report the interest on a personal Self Assessment tax return. You may have to pay tax on the difference between the official rate and the rate you paid.

So definite tax implications. This is where your accountant will earn their fee.

Also, be very careful to make sure there are enough funds in the company to cover tax liabilities. I know of more than one person who took a significant directors loan from their company then couldn’t cover their tax and VAT bills. Ended up being liquidated.

Thank you. We have arranged a meeting with the Accountant. It is a bit more complicated than I thought

Thanks. There are enough funds in the company; it is more the personal tax implications we were no thinking of, perhaps is better to borrow against the house again to pay it of.

Depending on timing the company may also have to pay corporation tax on the loan at 33.75%. This is repayable to the company after the loan is repaid. Definitely look at the options and rules with your accountant.

Thank you all. The crunch link explain it very well so I understand the implications; but we have also arranged a meeting with the Accountant.