The Director's Loan
A Director's Loan happens any time you take money from your company that isn't a salary or a dividend. It's a flexible way to borrow from your business, but there are important tax rules you need to follow.A Director's Loan is exactly what it sounds like: a loan from your company to you as the director. You are borrowing the company's money and are expected to pay it back.
When does a Director's Loan happen?
It happens any time you receive money from the company that hasn't been officially declared as a salary, dividend, or expense reimbursement.
For example, if you pay for a personal holiday using the company debit card.
The total amount you owe the company is recorded in your Director's Loan Account (DLA).
The Tax Rules
If you owe your company money at the end of your company's financial year and don't pay it back within 9 months and 1 day, the company may have to pay a special tax called the s455 tax.
This is currently 32.5% of the outstanding loan amount.
The good news: you can get this tax refunded by HMRC once you have repaid the loan — but it may cause cash flow issues in the meantime.
There can also be personal tax implications if the loan is over £10,000 and interest-free.
Keeping a clear record in your Director's Loan Account is essential.