Most Directors of small companies have two key controls / restraints around money that they borrow from a Company (even if it's their own Company)
- If they borrow more than £10k at any point from their company they must be charged interest of at the current HMRC beneficial loan rate % otherwise they will incur a benefit in kind tax charge. It is usually more tax efficient to pay the interest rather than incur the tax charge.
- If any money they have borrowed from the company is not repaid in full within 9 months of the end of the accounting period then a temporary tax of 33.75% (based on 2024/25 rates) of the outstanding loan value has to be paid to HMRC. This can only be reclaimed from HMRC 9 months after the end of the accounting period in which it is repaid.
Also the directors must have permission from the shareholders and directors to borrow the money in the first place. If this is your own company this is not an issue but where there are other directors and shareholders some minutes should be drawn up approving the loan.
All borrowings and repayments will be recorded in your Directors Loan Account (DLA) on your books. Other than lump sum borrowings, other items which might be logged in your Directors Loan account could be:
- personal expenses which have gone out of the businesses bank account
- business expenses which you have incurred personally
- any loans that you have given to your company
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