Can Directors charge interest on loans?

Discussion in 'Accounts & Finance' started by commadus, Dec 17, 2010.

  1. commadus

    commadus UKBF Newcomer Free Member

    Posts: 212 Likes: 10
    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?
    Posted: Dec 17, 2010 By: commadus Member since: Dec 9, 2007
    #1
  2. sanjiv

    sanjiv UKBF Newcomer Free Member

    Posts: 2,122 Likes: 251
    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?
    Posted: Dec 17, 2010 By: sanjiv Member since: Feb 15, 2010
    #2
  3. David Griffiths

    David Griffiths UKBF Legend Moderator

    Posts: 10,337 Likes: 3,281
    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!
    Posted: Dec 17, 2010 By: David Griffiths Member since: Jun 21, 2008
    #3
  4. Alpha

    Alpha UKBF Newcomer Full Member

    Posts: 4,130 Likes: 518
    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)
    Posted: Dec 17, 2010 By: Alpha Member since: Feb 16, 2004
    #4