New Forest

13/11/2019

Keep details of your director’s loan account

In a recent Tax Tribunal case the judge agreed with HMRC that a detailed breakdown of directors loan account transactions is required, including dates.

The significance is that where the loan account is overdrawn (debit balance) there will be, in most cases, a P11d benefit on the director and also a tax charge on the company. A taxable benefit in kind would arise where the loan exceeds £10,000 and the interest paid by the director to the company is less than the HMRC official rate, currently 2.5%.

In addition, if the director is also a shareholder of a close company, there is a 32.5% tax charge payable by the company making the loan, where the loan is still outstanding 9 months after the end of the accounting period.

In future, HMRC will look more closely at directors loan accounts so it is important that detailed analysis is kept.

Note that where the loan is repaid to the company and a similar amount withdrawn within a 30 day period the tax legislation matches the repayment with the new “loan” and consequently the original loan would still be outstanding.

For further information on a Director’s Loan Account, please contact David Brookes on 023 8046 1216.

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