As a director of a limited company, you have the option to take loans directly from your business as and when you require extra capital.
Before committing to a director’s loan it is essential that you are aware of how they are treated for tax.
In this blog post, we will examine 2 taxes that could potentially be levied on your loan: corporation tax and PAYE.
Corporation tax and directors’ loans
Any loan that has not been repaid to the business within 9 months of the end of the accounting period will be charged the 32.5% corporation tax rate stated in section 455 of the Corporation Tax Act 2010. Loans made before 6 April 2016 will be charged the old s455 rate of 25%.
Tax is charged on the amount outstanding, rather than the total value of the loan.
Any tax due will become payable 9 months and 1 day after the end of the corresponding accounting period and timing is therefore important when borrowing money from your business.
Taking a loan at the beginning of your company year will give you 21 months to repay in full.
Conversely, you will have just 9 months to repay if you take out a loan at the end of the company year.
PAYE and directors’ loans
Low-interest loans exceeding £10,000 are deemed benefits-in-kind and a tax will be charged on the interest saved as a result of borrowing from the company.
The loan will not be treated as an employment benefit if you borrow from the company at a 3.25% interest rate or higher.
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Our team is happy to offer advice on directors’ loans to inject into your business.