Tax on company loans to directors

[OwnerDirector]

Please could someone help with this?

During the course of the company year just ended, both directors ran up loans from the company of exactly £5,000 each. Our understanding at the time was that there were no tax implications (personal or corporation tax) as long as we paid them back within a certain period.

I would be grateful for opinions on:
Is this correct?
If not, what taxes might be due?
If it is, how long is the 'certain period'?
Can the loans be taken out again when repaid, and if so, how quickly?

I realise that it is common for these types of loans to be converted to dividends, subject to subsequent 19% corporation tax and possible income tax for higher rate payers, but I would rather just leave them as is.

Many thanks for any answers or insight.

[Andy Wood]

Hi OwnerDirector,

Assuming that youÂ’re a close company (under control of 5 or less shareholders or controlled by itÂ’s directors) then corporation tax (25% x loan) may be due on loans to shareholders.

However, if the loan is repaid within 9 months from the end of the accounting period in which loan is advanced then there will be no tax due.

This assumes that both directors have a material interest in the business.

Where a loan is written off then the borrower is deemed to have received a dividend which is taxable as per normal.

Hope this helps

Cheers

Andy Wood CTA DipPFS
awood@clbcoopers.co.uk
01204 551124

[OwnerDirector]

Andy,

Thanks for this. We are a close company. Your advice is what we thought originally, but an initial discussion with our accountants cast doubt on that - I will raise this again with more confidence!

Any thoughts on relending? Could it be done straightaway (as soon as funds have cleared), subject to repaying it again within nine months of the end of the next company year?

Many thanks.

[MichaelP]

Andy,

Re the chain above concerning loans to directors, does the 25% CT get refunded if the loan is repayed during the following financial year, but more than 9 months into it?

Many thanks in anticipation