Loans to directors

If you are a company director or ‘participator’ and take money out of your company and which is not described as a salary or a dividend, it is classed as a director’s loan.
If your director’s loan account is not paid off in full within nine months after the end of your company’s accounting period:

• You must include details of the loan in your Company Tax Return.
  
  
• Your company must pay Corporation Tax on the loan (s455 CTA 2010) – the current tax rate for directors’ loans is 25% of the loan.

The good news is that you can reclaim the tax when the loan is repaid - often by paying a Dividend to clear the balance outstanding (s458 CTA 2010)

How you do this depends on timing:

• If your claim is made within 24 months of the end of that accounting period you can amend and resubmit an amended Company Tax Return for that previous accounting period.
  
  
• If your claim is made more than 24 months after the end of the previous accounting period you can make a separate claim by writing to HMRC at the same time as you file your Company Tax Return for your most recent accounting period.

The Claim was previously known as a S419 claim (S419 ICTA 1988) but its now covered by S455 and S458 Corporation Tax Act 2010

When writing to HMRC make sure you give them as much information as you can for example:

UTR – Unique Taxpayer Reference

Company Name and Details

Amount being reclaimed

Details of the relevant Corporation Tax Returns on which the Directors Loans are shown

Your Bank Account Details for the Refund

Final comment from Mark

It is always preferable to clear down any outstanding loan accounts as far as possible before the company’s year end.