What are Director’s Loan Accounts?
Put simply, a Director’s loan account is where you can keep track of money taken out, or invested, in your business by the Directors. Ideally, the account would be in credit or at zero.
If a Director takes out money from a business over and above a salary, this is treated as a loan by the business to the Director and it becomes a liability to the business. There is no legal limit to the amount that can borrowed from your business but taking too much out may cause you cash flow problems.
Any repayments, or further loans, will also be recorded in the loan account. There may be tax consequences if a Director owes money to the business. It is a requirement for a business to report the details of the Director’s loan account in their annual financial statements to ensure transparency and compliance with the tax regulations.
Loans of more than £10,000 will be treated a ‘benefit in kind’ and must be reported on self-assessment tax returns.
There are rules about repaying the loan and on the penalties for failing to repay within 9 months and one day from your year end so we advise you to talk to an accountant about Director’s loans if you’re in this situation.
Our team of AIMS accountants work with SMEs and Directors so we understand the challenges that business owners face. We’re here to make sense of complicated issues so don’t hesitate to talk to us. You can find the nearest AIMS accountant to you here: