Directors' Loan Accounts - Making the Tax Rules Work for You (PDF)

1. Introduction

1.1. What is a director’s loan account?

1.2. Why is HMRC interested?

2. Loan-related tax charges applying to companies

2.1. Why are there special rules for directors’ and shareholders’ loans?

2.2. Who does the tax charge apply to?

2.3. What is HMRC’s view of directors’ loans?

3. Loans from close companies

3.1. What counts as a loan?

3.2. What doesn’t count as a loan?

3.3. How are trading transactions between a participator and their company treated?

3.4. Are there exemptions for small loans?

3.5. What if the close company’s business includes making loans?

3.6. Are indirect loans caught?

3.7. What about loans to partnerships and trusts?

3.8. When do the rules for loans to partnerships apply?

4. Tax charge on loans to participators (s.455 charge)

4.1. When does the charge apply?

4.2. Will HMRC refund s.455 tax?

4.3. How much is the charge?

4.4. When is the tax due?

4.5. What is bed and breakfasting?

4.6. How does the 30-day rule work?

4.7. Can the 30-day rule be avoided?

4.8. What is the “intentions and arrangements” rule?

4.9. How are repayments and withdrawals matched for the purposes of these rules?

4.10. What happens if the loan is repaid after s.455 tax has been paid?

4.11. How is the s.455 tax reclaimed?

4.12. How is the relief given?

5. Reporting to HMRC and accounting for s.455 tax

5.1. Do I need to tell HMRC about the loan?

5.2. Loan repaid before the end of accounting period in which it is made

5.3. Loan repaid after the end of the accounting period but before due date for corporation tax

5.4. Loan outstanding nine months and one day after end of accounting period

5.5. How are details of the loan reported?

6. Benefit in kind charge on outstanding loan

6.1. What is the benefit in kind charge?

6.2. What if the participator is not an employee?

6.3. What about NI?

6.4. Which loans are exempt?

6.5. Are there any other exemptions?

6.6. What details need to be reported?

6.7. How is the tax collected?

6.8. When is the Class 1A NI payable?

7. Repaying or clearing the loan

7.1. How can a director’s loan be repaid?

7.2. What’s the position when introducing funds into the company to clear the loan?

7.3. What’s the tax position on declaring a dividend to clear a director’s loan?

7.4. What’s the tax position on dividends for basic rate taxpayers?

7.5. How does the dividend allowance apply for higher and additional rate taxpayers?

7.6. What’s the position of clearing a director’s loan using salary?

7.7. What’s the tax position of paying a bonus to repay a director’s loan?

7.8. What’s the tax position when a director’s loan is written off?

7.9. How does clearing a loan affect the s.455 charge?

8. Arrangements “conferring a benefit” on a participator

8.1. What are the “conferring a benefit” rules?

8.2. What is conferring a benefit?

8.3. How much is the tax charge and when is it payable?

8.4. Can the charge be avoided?

9. Tax planning

9.1. Cheap source of short finance

9.2. How can cheap borrowing from your company be maximised?

9.3. To repay or not to repay?

9.4. Clearing the loan by dividend - a good idea or not?

9.5. Clear by salary or bonus

10. Tax terms that apply to company loans

10.1. What is a close company?

10.2. Who is a participator?

10.3. Who counts as a loan creditor?

10.4. Who is a director for these purposes?

10.5. Who is an associate?

10.6. What does “control” mean?

11. Appendix

11.1. Legislation

11.2. Original legislation

11.3. Legislation for the new rules (30-day rule etc.)

11.4. HMRC toolkit