What is a Director's Loan?

A director’s loan is when you either take money out of your company that is not taken in the form of a salary, bonus, dividend or expense repayment, or you lend money to the company.

It is possible that you will have to pay tax on the loan, and your company may also have to pay tax if you are a shareholder (called a participator) in that company as well as being a director of the company.

You are required to keep a record of any money you take as a loan from your company, as well as any money you pay into the company. This record is normally called a director's loan account.

Your personal tax liability, and that of your company, depend on whether the director’s loan account is:

The tax treatment of loans and the way they need to be recorded is quite complex. For this reason, we have not attempted to document this here. However, if you go to the HMRC website (see below for link), you will be able to see exactly what taxes need to be paid, and what records need to be kept.

Dividends

Dividends can only be paid to shareholders if there is sufficient profit held in the company to enable the dividends to be paid. This can be profit that has been generated in the current financial year, or profit that was made in previous years.

If you are considering paying dividends, make sure that you don't pay out more than is allowed. If you do, the payment will be classed as a directors' loan, which will end up making your accounting more complicated than it needs to be.

As always, if you are unsure about how much you can pay out in dividends, talk to your accountant.

You can find out more about directors' loans on the HMRC website at the following address:

You can find out more about dividends on our main dividends web page.

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