Company loans to directors

With effect from 6th April 2014 the amount that a director can borrow from their company has doubled from £5,000 to £10,000. Such a loan may be borrowed interest free or at a low rate without a tax or National Insurance charge being incurred.

This is a particularly useful source of low cost finance. The term cannot be indefinite although as long as the amount borrowed is under £10,000 a tax charge should not arise irrespective of whether the loan is paid off or not. Many companies have such loans showing on their balance sheets for many years, without tax or National Insurance liabilities arising.

If the company writes off the loan, however, then the amount written off becomes a benefit in kind and is subject to tax and National Insurance.

It should also be borne in mind that if the amount of the loan, including accrued interest, if applicable, exceeds £10,000 then the entire loan becomes subject to tax and National Insurance by the borrower – not just the balance above £10,000.

Loans to spouses or children are aggregated to test whether the £10,000 limit is exceeded. There are also additional potential tax charges where the director borrowing the money is also a company shareholder.

This article was created by --Martinc 18:44, 25 April 2014 (BST)