Directors' Loan Account
As a director of a company you are able to take a loan from your company via a directors loan account. This account facility works both ways and also enables a director to loan money to the company. This facility recognises that, as a director, you have an interest in the company and therefore the director and the company can assist each other’s cash flow when required.
If you take money out of your company over and above the amount you have loaned to the company – and that money is not accounted for as salary or a dividend – then it is accounted for as a loan from the company to you. Your director’s loan account is overdrawn.
If this overdrawn director’s loan account is not rectified by 9 months after your company year-end, you (as the director) will be liable to pay S455 Tax on your overdrawn director’s loan account. It is not technically Corporation Tax but in practice, you calculate the tax on your overdrawn loan on your Company Tax Return and add it to the Corporation Tax that is due. This must be declared in
section 455 of your company’s tax return.
The current tax rate for an overdrawn directors’ loan is 25% of the overdrawn loan.