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Interest rate on loans to companies from Directors

Interest rate on loans to companies from Directors

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Can anyone advise the official rate of interest a director can charge to the company for interest on a loan made to the company?  We have looked on HMRC website but can not find any reference to it.

We are aware that quarterly forms CT61 needs to be completed and income tax deducted, also that the income must be reported on the director's tax return, but can not find out if there is an official rate of interest to be charged.

Thanks in advance for your assistance.

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By dreamcatcher
15th Nov 2011 09:02

The official rate of interest you refer to is only relevant where a directors' loan account is overdrawn and based on what you say this would not appear applicable here.  

Where a directors loan is in credit a 'commercial' rate of interest can be charged by the director to the company.  What would be deemed to be commercial would depend on the amount of the loan and the risk attached to the loan.  As a starting point I usually look at what rates the banks are offering in terms of a business loan for a similar amount and then base the rate charged around that.

The interest charged does qualify for corporation tax relief.  Also don't forget the director may have a liability to higher rate tax on any interest received, depending on his total level of income.  Any additional liability would need to be paid by 31 January following the end of the tax year in which he received the interest. 

 

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Replying to Francois Badenhorst:
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By Siany
15th Nov 2011 09:19

Thank you Dreamcatcher, that was quick!

I have tried to dissuade him from this as he is a higher rate taxpayer.

Love how useful this forum is, thanks again!

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