Can Directors charge interest on loans?

[commadus]

I have invested money in my business - at times paying for stuff on my own card. This money has slowly built up - I have never charged interest on it as it seem perverse but could Directors legally charge interest if they lend the business money.

Am I correct in assuming that all loans from the business to the director are illegal and break the law?

[sanjiv]

I think you can do loans from the business to director up to £5k. Anymore is illegal.

Why would you want to charge interest? You would only be taxed on it anyway. Are there other shareholders?

[David Griffiths]

Yes, a director can charge interest.

However, the company must deduct income tax at 20% and pay this over to HMRC quarterly

There are many reasons why somebody would want to do this

Strictly loans from the company to directors are in breach of the Companies Act, but it's not a criminal offence and in practice nobody really cares if it's a director controlled business. There are tax consequences in that a benefit in kind arises if the loan exceeds £5k at any time in the tax year, and if the loans aren't repaid within 9 months of the year end the company has to form out 25% corporation tax on the loan - refunded after the loan is repaid

Much more to it than that, but brevity calls!

[Alpha]

Originally Posted by commadus

Am I correct in assuming that all loans from the business to the director are illegal and break the law?

Following implementation of companies act 2006 it is no longer illegal for a company to make loans to its directors however shareholder approval is required if the loan exceeds £10000 (£50000 when loan is to meet expenditure on company business)