A detailed breakdown of a Director’s Loan Account (DLA), including dates, is now required. This comes after a judge agreed with HRMC in a recent tax tribunal case.
The significance is that where the loan account is overdrawn (debit balance) there may be a possible P11d benefit on the director and also a tax charge on the company.
A tax benefit in kind would arise where the loan exceeds £10,000 and the interest paid is less than the HRMC official rate, currently 2.5%.
Any overdue payment of a director’s loan means your company will pay additional Corporation Tax at 32.5% on the amount outstanding. If the entire director’s loan is paid within nine months and one day of the company’s year end, you won’t owe any tax.
It is then clear to see why HMRC requires a detailed analysis of transactions between the director and the company for the Director’s Loan Account.
It is worth noting that when the loan is repaid to the company and a similar amount is withdrawn within a 30 day period, the tax legislation matches the repayment with the new “loan” and consequently the original loan would still be outstanding.
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