Directors loans

munkeh · Nov 8, 2006

In a private limited company what is the maximum amount a director can take out as a directors loan? I've read it is £5,000, but is this in one transaction or the total cumlative amount at any one time?

Also, does it have to be paid back within 9 months or is it that you just incur tax if it isn't paid back within 9 months?

Thanks in anctipation.

dcaccounting · Nov 8, 2006

The £5,000 that you have in mind is the amount that the company can loan the directors' without either party incurring any tax consequences.

Any loan however must be repaid within 9 months.

Regards

Dean

munkeh · Nov 8, 2006

dcaccounting said:
The £5,000 that you have in mind is the amount that the company can loan the directors' without either party incurring any tax consequences.

Any loan however must be repaid within 9 months.

Regards

Dean

But can't more be loaned and/or for longer but subject to tax, and if so at what rate?

TaxesClear Ltd · Nov 9, 2006

Any loan to Company Directors is prohibited by company law.

Tax Law will charge corporation tax on any loan outstanding for more than 9 months.

The rate if tax is 25% of the loan and the tax will be re-paid when loan is re-paid.

If Director has interest-free loan he will also pay income tax on the interest.

Dennis

Kent Accountant · Nov 9, 2006

TaxesClear Ltd said:
Any loan to Company Directors is prohibited by company law.

A company may not make a loan to, or provide a guarantee for, a director (or director of its parent company) or enter into indirect arrangements to achieve this.

These restrictions do not apply to loans under £5,000, loans made to a director to perform his duties or loans to meet expenditure for company purposes.

In practical terms, directors frequently take larger loans. This is not illegal but can cause the director problems in the event of company insolvency

TaxesClear Ltd said:
Tax Law will charge corporation tax on any loan outstanding for more than 9 months.

S419 tax will be due on a director's loan which has not been repaid within 9 months of the end of the accounting period

TaxesClear Ltd said:
The rate if tax is 25% of the loan and the tax will be re-paid when loan is re-paid.

The tax will be repaid 9 months after the end of the accounting period in which the loan is repaid. Further tax will be due if the loan increases and a partial repayment will be made if it reduces but is not fully repaid

TaxesClear Ltd said:
If Director has interest-free loan he will also pay income tax on the interest.

dcaccounting · Nov 10, 2006

Hi munkeh

Sorry for the delay in reply, one has been suffering with MAN flu!

You have pretty well had the answers from Bob. Just to add though:

The company will need to produce a P11d for the director and the company will also be liable to class 1a NI @ 12.8% of the cash equivalent balance.

This is now seen as a benefit in kind to the director, he will also pay additional Income Tax on it at (depending on his tax band) 22"/40%.

TaxesClear Ltd said:
If Director has interest-free loan he will also pay income tax on the interest.

Dennis

That's excellent!

Certainly cheered up my blues!

Regards

Dean

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