Director's loan to Company

Director's loan to Company

Didn't find your answer?

First of all - can he do this? He is paying himself an additional £1,000 in interest for 1 year!
Secondly, I understood that if a loan like this is repayable within 1 year (i.e. a "short term loan") interest may be paid gross - so no need for CT61
Any advice appreciated
Deborah Griffin

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Euan's picture
By Euan MacLennan
11th Aug 2006 11:06

Yes, but
Yes - he can lend £2,000 to his company and pay himself back over whatever period he chooses.

Yes - the company can pay interest to him on the outstanding loan.

But - the rate of interest is excessive and you may not be able to deduct it in full from the company's profits under the "wholly and exclusively for the purposes of the trade" rules in s.34 ITTOIA 2005.

But - income tax is deductible under s.349(2) ICTA 1988 from the interest at the lower rate of 20% and is payable to HMRC with a CT61 return. Presumably your belief that income tax is not deductible is based on the wording "yearly interest" used in s.349(2). It was always doubtful that "yearly" had any particular signifcance as it was not defined anywhere, but s.349(2) has now been clarified by including "which falls within Chapter 2 of Part 4 of ITTOIA 2005 (interest)". There is no mention of "yearly" in that Chapter and no mention of an exemption for interest on short term loans.

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By nick farrow
19th Jul 2007 16:02

if the money lent is borrowed
if the director has borrowed the money , he may claim the interest paid as tax deductible qualifying loan interest - so only the excess interest received from the company over the personal interest paid is taxable in the director's hands. I understand it is quite permissible for the director to charge his company a higher rate of interest than he is personally paying.

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