Let’s say your company has a bank account and some money on it. It means you can access to this money, as a director, but it does not belong to you, or anyone in the company. Whom does belong to? Well, it is an amount of money that HMRR defines as the director’s loan money. HMRC can take that money from you just in case it is not a salary, or some kind of expense payment, neither is money that you previously loaded into the company. Now, depending on your yearly activity, at the end of the year you either own money to company or company owes you. Ever activity and taking this loan must be recorded as an asset liability.
What information are crucial for the director’s loan?
There are two things that you must include and write down in your DLA: any cash withdrawals that you have taken as the director, and all personal expenses that were charged using company’s card or money. When you spend money on gas so you could go at attend the meeting with the board of directors, it is considered as a business expense. Every other expense that you have made that is not within the scope of business necessity or exclusivity is considered to be personal expense. Basically, you must be able to present all the transactions that were made during a year.
Why would a director take this loan and is there any tax?
There could be many reasons for this. The director may want to afford a nice holiday for him and his family, so he might take that money and use it for that. Before the year ends, he repay this and cover the loan that he took from the company that he is running, basically. There are many reasons for this and the most important thing is that he repays the loan and provides transactions to cover his loans.
Normally, you will not pay any tax on the loans, as long as you repay within the designated time. The tax is paid if you fail to repay before the end of financial year. In that case, a certain amount of tax is paid. Usually it is around 32.5% that you must pay. These can become huge problems if you do not repay the loan on time. Ultimately, you can even lose your job in specific situations.
What happens if company owns me money?
If this happens, company will not pay any taxation on the amount you lent and you can withdraw money any time you want. If you do charge interest rate on the lent money, this expense is classified as business expense of company, while it is a pure income for you. Of course, this involves the proper declaration and recording of this expense, as it should be in the Self-Assessment table. Therefore the different taxation rate is applied on the amount and everything becomes transparent and legally correct.