Four separate rules can bite on the same director's loan, and they have different thresholds, different deadlines and different taxpayers. Companies get into trouble by treating them as one rule. This page separates them: what has to be reported, what the company pays, what the director pays, and what the shareholders have to approve.
Reporting: always, if overdrawn at the year end
A balance owed by the director at the end of the accounting period goes on form CT600A with the company tax return, whatever its size and whether or not it has since been repaid. Reporting is not the same as paying: a loan repaid within nine months of the period end is reported and carries no charge, and HMRC's system is built to expect exactly that sequence.
The company's charge: 33.75% after nine months
If the balance is still outstanding nine months and one day after the end of the accounting period, the company pays corporation tax at 33.75% of it, or 32.5% where the loan was made before 6 April 2022. The charge is temporary in principle and permanent in practice if the loan never clears, because it is only reclaimable once the loan is permanently repaid, and the interest that accrued in between is not reclaimable at all.
The director's benefit in kind: over £10,000
A loan exceeding £10,000 at any point in the tax year is a taxable benefit for the director unless the company charges interest at least equal to HMRC's official rate. Where it is a benefit, it goes on a P11D, the director pays income tax on it and the company pays Class 1A national insurance. Charging the official rate removes the benefit entirely, at the cost of the company having interest income and a CT61 to file.
Company law: approval above £10,000
The Companies Act generally requires a loan to a director of more than £10,000 to be approved by the members. This has nothing to do with tax and is often the rule that is missed in a single-shareholder company where the director and the member are the same person; the approval is still needed and is a minute rather than a meeting.
Questions people ask about directors loans
Do I have to report a director's loan that I repaid?
If it was outstanding at the end of the accounting period, yes, on form CT600A, even if it was repaid before the return was filed. Repayment within nine months of the period end removes the charge, not the reporting.
What is the tax rate on a directors loan?
33.75% of the outstanding balance, paid by the company, where the loan is still unpaid nine months and one day after the end of the accounting period. Loans made before 6 April 2022 carry 32.5%.
Can I avoid the charge by repaying and reborrowing?
No. Where at least £5,000 is repaid and £5,000 or more is borrowed again within 30 days either side, the repayment is matched against the new loan and the charge stands on the original.