Employment Tax

Director’s loan account

Produced by Tolley
  • 01 Apr 2022 14:42

The following Employment Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Director’s loan account
  • Tax implications for the company
  • Tax implications for the director
  • Dealing with overdrawn directors’ loan accounts
  • Potential pitfall ― net bonuses following the ‘McVeigh’ case

Director’s loan account

Proprietors often take loans from their companies. Since 1 October 2007, following 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 the possibility of a taxable employment benefit for the director and a tax liability at the dividend upper rate (32.5% to 2021/22, 33.75% from 2022/23) for the company if the loan is unpaid nine months after the period end.

See also Simon’s Taxes E8.290, B9.133 and B9.129. HMRC guidance on loans to participators is at CTM36210.

Tax implications for the company

A corporation tax charge arises if the employer is a close company and it makes a loan to a participator. For definitions and the tax treatment, see the Loans to participators guidance note.

Tax implications for the director

If a loan is provided by a third party, rather than the employer, it is worth considering whether the disguised remuneration provisions in ITEPA 2003, ss 554A–554Z21 (Pt 7A) apply, as those rules have priority over most of the other rules for taxing employment income. The rules are discussed in detail in the Disguised remuneration ― overview guidance note.

Whether or not the director is also a participator, they will be treated as receiving

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