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​What’s an overdrawn Director’s Loan Account?

Posted 02/07/2018 by Amy Patterson

What’s an overdrawn Director’s Loan Account?

An overdrawn Director’s Loan Account is where you, as a Director, have taken money out of the company that is not classed as a dividend or salary and the figure exceeds any money that you have put into the company…tut tut!

At this point you will be deemed to be benefiting from a Director’s loan; a loan from the company to yourself. Whilst unpaid, this loan would be considered a company asset which has tax implications for the company. To avoid tax on this balance the loan must be repaid within 9 months of the company year end.

Help! What tax implications?

If there is still an overdrawn sum at the end of the 9 months, then the company must pay 32.5% S455 tax on the remaining loan.

What is S455 tax?

S455 tax is essentially a holding tax. Once the overdrawn Director loan balance is cleared the company will get the tax refunded. The tax is so high as it is meant to deter people from taking money as a loan to avoid an Income Tax charge! The rate is equivalent to the higher dividend rate!

Be warned…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.

https://www.gov.uk/government/publications/paye-en...

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