At a glance: HM Revenue & Customs (HMRC) do a toolkit for advisers. This is our own version with planning points. Subscribers to this service, click here for your detailed version.

At a glance

HMRC instructs its staff to examine directors' private expenditure during the course of an inquiry into a close company's books and records. In most cases, the company will be expected to produce a transaction history of any director's loan or current account.


An overdrawn director’s current account is the same as a loan account

An overdrawn director’s current account that is not repaid is treated as an outstanding loan and this may create tax complications for both the company and its director:

Company tax charge on outstanding loans to participators: s455 CTA 2010

Top tips and planning points

Taxable benefit: if the loan is interest-free and exceeds £10,000 (limit £5,000 up to 5 April 2014)

Write off or release of an overdrawn director’s loan

When a Close company writes off or releases a loan made to a director:

a) who is a participator, the amount released is treated as a distribution, or

b) who is not a participator, the amount is taxable as employment income.

In most small companies the director will be a shareholder and will be entitled to vote at board level and so will be a participator. The distribution treatment will apply to any loans made and written off to the director or his family.

Write off of a loan from a Director

Where a Director makes a loan to a company that is written off a number of different tax consequences may well apply: see Close Company Loans Toolkit.

Changes effective from 20 March 2013

From March 2013 three new measures were introduced to extend the s455 tax charge to deter tax avoidance using close company loans.

These measures counter the following arrangements where a close company:

These affect new loans and repayments made on or after 20 March 2013 and are covered in detail in our Close Company Loan Toolkit

Overview and FAQs

This section is only available in Subscriber Guide to Directors' loans

see Subscriber Guide to Directors' loans

Small print and Links


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