{"id":6257,"date":"2025-03-12T09:55:18","date_gmt":"2025-03-12T09:55:18","guid":{"rendered":"https:\/\/www.bainesjewitt.co.uk\/blog\/?p=6257"},"modified":"2025-03-12T09:55:20","modified_gmt":"2025-03-12T09:55:20","slug":"the-tax-traps-of-directors-loans-how-to-avoid-unnecessary-charges","status":"publish","type":"post","link":"https:\/\/www.bainesjewitt.co.uk\/blog\/the-tax-traps-of-directors-loans-how-to-avoid-unnecessary-charges\/","title":{"rendered":"The tax traps of director\u2019s loans \u2013 How to avoid unnecessary charges"},"content":{"rendered":"

Director\u2019s loans can be a useful way to access company funds, but if not managed properly, they can lead to unexpected tax liabilities.\u00a0<\/span>\u00a0<\/span><\/p>\n

<\/p>\n

With HM Revenue & Customs (HMRC) increasing the official interest rate for beneficial loans from 2.25 per cent to 3.75 per cent from April 2025, directors must be even more cautious about how they handle these loans.\u00a0<\/span>\u00a0<\/span><\/p>\n

What is a director\u2019s loan?<\/span><\/b>\u00a0<\/span><\/p>\n

A director\u2019s loan occurs when a director borrows money from their company that is not salary, dividend, or expense reimbursement.\u00a0<\/span>\u00a0<\/span><\/p>\n

While this can provide short-term financial flexibility, it comes with strict tax implications if not repaid correctly.<\/span>\u00a0<\/span><\/p>\n

The nine-month repayment rule<\/span><\/b>\u00a0<\/span><\/p>\n

If a director borrows money from their company, it must be repaid within nine months and one day after the end of the company\u2019s accounting period.\u00a0<\/span>\u00a0<\/span><\/p>\n

If the loan remains unpaid beyond this deadline, the company incurs a tax charge under Section 455 of the Corporation Tax Act 2010 (the Act).\u00a0<\/span>\u00a0<\/span><\/p>\n

This charge is currently 33.75 per cent of the outstanding loan balance.<\/span>\u00a0<\/span><\/p>\n

How to avoid this:<\/span><\/b>\u00a0<\/span><\/p>\n