If you are the director of your own company, you may wish to learn a little more about the director’s loan account and its tax implications. Essentially, a director’s loan account is a “current account” in the company.
As a director, you are a separate legal entity to your company. Therefore, the money in the company’s bank account does not belong to you. When you have transactions with the company, they are transactions with a separate “person” and are recorded in the director’s loan account.
Tax on Director’s Loan Account – money owned to you
You may have injected cash into the company or incurred expenses on behalf of the company. The company owes money to you.
The company does not pay corporation tax on the “cash” received. When the company repays you, the repayment of a loan is not an expense.
You do not pay income tax on the loan repayment from the company.
Charging interest on money owned to you
You may charge interest on the director’s loan. The “interest” element will be a business expense for the company and personal income for you.
Your company must:
- pay you the interest less Income Tax at the basic rate of 20%
- report and pay the Income Tax every quarter using form CT61
You must report the income on a personal Self Assessment tax return.
Next week we will be looking at the tax implications on money you owe to your company