This is a loan taken by the Director from the Company or vice versa.
A Limited Company is a separate legal entity and as such the Directors (who are also shareholders) need to be careful when extracting monies.
Monies withdrawn from the Company need to be treated as either a salary or a dividend. Real Time Information (RTI) (a system of PAYE reporting which has been recently implemented by HMRC) has meant that directors’ salaries should be processed as and when payments are made. Dividends can only be issued where sufficient reserves are in place.
The director’s loan can be made up of a number of transactions. For example, reimbursing the company or the director for expenses paid.
The key taxation issues are:
- If the Company owes the Director money there is no taxation issue
- If the Director owes the Company money:
– If repayment is not expected within 9 months of the financial year-end, 25% of the balance is payable to HMRC. This is recovered when the loan is repaid
– If the director’s loan exceeds £10k for each director from a 6th of a month to the next 5th of the month, then this results in a taxable benefit on the Director. An HMRC form called P11d will need to be prepared and submitted.
Key Points to note:
The company is a separate entity. Care needs to be taken when extracting monies. If unsure, particularly for large transactions, just get in touch – we’ll be happy to help.