The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:
With some limited exceptions, loans from companies to their directors were previously prohibited under company law. Since 1 October 2007, following enactment of Companies Act 2006, private companies are permitted to make loans to their directors, provided that shareholder approval is obtained.
The main tax implications of loans from companies to their directors are:
This is dealt with in more detail below, together with some ideas for dealing with directors’ overdrawn loan accounts. In practice, controlling directors having overdrawn loan accounts is very common. This is particularly the case where they have previously operated as an unincorporated business and drawings did not have repercussions on taxation.
When a company lends money to an employee, this is likely to give rise to a taxable benefit on which income tax and class 1A NICs are due. The cash equivalent of the benefit is calculated using HMRC’s official rate of interest. If no interest is charged or the interest rate is less than the official rate of interest, the cash equivalent is the difference between the interest that would have been payable at the official rate of interest and any interest which is paid.
Benefits in kind are reportable on Form P11D and on the employee’s tax return.
On Form P11D, interest-free, or low interest, loans are reported
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