If you're a company director 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.
Consequently, your company may have to pay tax on any amount you've not repaid to the company by 9 months after the end of your Corporation Tax accounting period. The current tax rate for directors' loans is 25 % of the loan, although it is repayable should the balance fall. It may also need to be reported on the company’s corporation tax return.
There may also be Income Tax and National Insurance implications for you and for your company. Depending on the circumstances, it may need to be reported on form P11D as a benefit in kind and the company will have to pay Class 1A NICs on the value of the benefit.
Typically, a benefit in kind would only arise on loans greater than £10,000 (2013/14 – £5,000) throughout the tax year and is based on HMRC’s official rate of interest, which for 2014/15 is 3.25% (2013/14 – 4%).
Your local TaxAssist Accountant would be happy to discuss this with you in more detail, and more importantly, about how you can work towards bringing down the balance on your overdrawn director’s loan account.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.