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Directors Loan

Directors Loan

I have set up a new company recently and currently do not take all the cash out of the business which is not earning a very good interest rate.

If I loan the spare cash to my personal bank account, will this cause any tax or other problems

I was planning to effectively draw the cash out every month/2months and repay it all back just before the year end so that the year end accounts show a nil balance.

During the year I would also account for any dividends or salary payments by netting them off the loan account.
Mike Cane


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07th Apr 2008 20:15

Yes it will be taxable
I'm sure that much more sage and learned gentlemen than myself will give you more detail.

However any loan balance for more than £5,000 during a PAYE year (and the balance only has to go over for one day) would incur a benefical loan interest charge. Tax and NI would be payable by the individual, and Class 1a NI would be payable by the company on the beneficial loan interest amount.

Be also very careful that any dividend paperwork is correctly completed and coterminous with the issue of any dividends, it won't be the first time that this is challenged by the IR with beneficlal loan interest until such time as the paperwork is done.

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08th Apr 2008 11:42

watch out...
the other concern i have is if, your company goes insolvent the history of the DLA and your repayments to it need to be watertight evidentially. any insolvency practionier worth his salt goes after the directors.

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By newmoon
08th Apr 2008 09:53

HMRC call it Bed and Breakfasting
...and explain their view here http://www.hmrc.gov.uk/manuals/emmanual/em8565.htm

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