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FRIDAY FAQ: What is a director’s loan?

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This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.

Q. What is a director’s loan?

Answer: A director’s loan is when you or a close family member takes money out of your limited company that is not salary, a dividend or an expense repayment, or money you have previously paid in or loaned the company.

How a director’s loan works?

If you decide to take a director’s loan, you must keep a record of any money that is taken out or that is paid back into the business. This is known as a ‘director’s loan account.’

Any money taken out as a director’s loan must have be approved by all stakeholders, particularly if the loan is over £10,000.

It is important to take all the available money out of the business as you will need to retain some to cover tax liabilities.

HMRC state that the loan must be repaid nine months and one day of the company’s year-end. If you fail to do, you could be charged tax on it at a rate of 32.5% on the outstanding amount.

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