Director’s loan account

Produced by a Tolley Employment Tax expert

Employment Tax

Guidance

Proprietors often take loans from their companies. Since 1 October 2007, following Companies Act 2006, private companies are permitted to make loans to their directors provided that shareholder approval is obtained.

The main tax implications of loans from companies to their directors are the possibility of a taxable employment benefit for the director and a tax liability at the dividend upper rate for the company if the loan is unpaid nine months after the period end.

See also Simon’s Taxes E8.290, B9.133 and B9.129. HMRC guidance on loans to participators is at CTM36210.

Tax implications for the company

A corporation tax charge arises if the employer is a close company and it makes a loan to a participator. For definitions and the tax treatment, see the Loans to participators guidance note.

Tax implications for the director

If a loan is provided by a third party, rather than the employer, it is worth considering whether the disguised remuneration provisions in ITEPA 2003, ss 554A–554Z21 (Pt 7A) apply, as those rules have priority over most of the other rules

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