The tax implications of owing your company money

If a company has lent a director money this may create an overdrawn director’s loan account, depending on what other transactions there have been. 

There are two things to consider when looking at the overdrawn director’s loan account – the first being: is there a S455 tax charge, and the second: is there a benefit in kind.

Whether a S455 tax charges arises will depend on when the loan is repaid. If the loan is repaid in full within nine months of the period end then no charge will arise. If not there will be a S455 tax charge at 32.5% of the balance although this will be repayable nine months and one day after the end of the accounting period in which the loan is repaid. 

If there is a part repayment within the nine months then a S455 tax charge will only arise on the balance still outstanding at the nine months. There are also additional rules around the repayment of loans and then drawing the funds back out within certain timescales that also need to be considered when looking at whether a S455 tax charge is applicable.

Whether there is a benefit in kind charge will depend on what amount the loan account is overdrawn by. If this is under £10,000 there is nothing to report. Likewise, if interest has been charged at HMRC’s official rate there is nothing to report. If not it will need to be reported on a P11D and Class 1A NIC will be due.

If you would like any advice or assistance in this area please contact us on 01603 981640 or use our simple online contact form to arrange a free initial consultation.

Date published 28 Feb 2022

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.