skip to navigationskip to main content

Phone: 0141 248 7411 

Email:

Choosing a Service

Choosing an accountant that matches your needs

Sectors

Robb Ferguson provides specialist advice for...

icon-free-consultation

Free Initial Consultation

Understanding your accountancy requirements

Request a Callback

Lets talk at a more convenient time for you

The Directors Loan Account Write Off

Newsletter issue - October 07.

An overdrawn directors loan account is where a company loans money to the director. This is generally bad news from a tax angle and causes 2 problems which in summary are...

  1. A benefit in kind is due on interest free loans in excess of £5,000.
  2. A corporation tax charge of 25% of the amount of the loan is due if the loan is not repaid within 9 months of your accounting period end but is repayable 9 months after the end of the accounting period in which the loan is repaid.

It can often happen quite innocently when the director treats the company bank account as his own personal bank account, and whilst this shouldn't happen it often does in practice.

Assuming you don’t have the funds to repay the overdrawn account, the traditional way of clearing an overdrawn directors loan account has often been to pay a dividend to clear it. This is generally a cheaper method than voting a salary bonus which would incur large national insurance costs. However, what if the company can't pay a dividend because it doesn't have enough retained profits or a dividend is not wanted because other shareholders would also benefit, this can cause problems.

One potential answer is to look to get the company to formally write off the loan account. The amount written off can then be treated just as if it were a dividend for tax purposes. It should be written off because of your position as a shareholder rather than as remuneration from your position as an employee to avoid the Taxman trying to suggest the write off is an emolument liable to NI. Expert advice as always is essential before trying this.

Not everything is equal – true. But maybe being equal is simply not good enough?

Our Philosophy

We’re a dedicated team which strives to provide success to our clients in regards to all their accountancy needs.

Meet our team