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Acconting for a mortgage

A friend has paid off his own Companies long term Bank loan 2 years early by Re-mortgaging their house.
This is effectively a loan to their company.

Accounting for the initial loan and repayments is pretty easy.
But what exactly are the accounting/book-keeping entries required for this?

David

David R


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Euan MacLennan, 4-Oct-2006

DR Bank loan CR Director's Loan
In the company's books, the bank loan has been replaced by a loan from the director. The company can repay the director when it has funds available without any tax consequence.

The director is entitled under s.360 ICTA 1988 to claim on his personal tax return for the interest paid to fund a loan to his close company. You have to apportion the total interest down to the balance due from the company.

The company can pay interest to the director which will be deductible for corporation tax and taxable as the income of the director. Income tax at 20% has to be deducted by the company from its payments of interest and paid over quarterly with a CT61 return.