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​How to pay an overdrawn Director’s Loan Account

Posted 09/07/2018 by Amy Patterson

How to pay an overdrawn Director’s Loan Account

Whoops…you have got an overdrawn Director’s Loan Account!

Here is how to pay it…

There are two ways to clear an overdrawn Director’s Loan Account:

  1. You can pay the overdrawn sum using your personal account and pay it back into the company bank account. Warning – you can’t pay the funds in, and then promptly take them back out; if you do the repayment is ignored. If you do not have the exact figure, you can pay in lump sums up to the 9 months after the year end. If there is still an overdrawn sum at this point, then you will pay 32.5% S455 tax on the remaining loan.
  2. If the company has enough profits in the start of the next financial year (this will have started by the time the 9-month deadline for repayment is up), then you can declare an interim dividend to clear the Director’s Loan. For example, if the company has a good year then you can distribute this before the year end. As long as the Director with the overdrawn account does not take the money physically, this dividend then pays off the Director’s Loan balance.

Often Directors will not physically take the salary that is declared for them. This is also a way to reduce an overdrawn Director’s Loan. This is because the Director is owed a salary by the company but has not physically taken it. The money you are owed in salary by the company is then taken off the money that you owe the company.

WARNING! If a Director’s Loan balance is more than £10,000 overdrawn, a P11d benefit is reportable at an interest rate specified by the Government.

A P11d is a form of National Insurance due on benefits given to company employees. These can include private medical insurance and cars provided to employees which are paid for by the company. For more information on other items that attract P11d benefits please consult the .gov website.

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