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 instruct 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.


  • A director may receive a loan advance from his own company provided that it is not in financial difficulty, subject to its articles and the 2006 Companies Act.
  • Shareholder approval is required for larger loans.

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: a section 455 tax charge.
  • Income Tax: a taxable benefit on interest-free loans or tax charges on write off.
  • Compliance: Corporation Tax return extra schedules and P11D reporting.

Company tax charge on outstanding loans to participators: s.455 CTA 2010

  • When a director (or any other participator in a close company) is made a loan that is left outstanding for more than nine months after the company’s accounting period end, the company will be required to pay tax under s.455 CTA 2010.
    • Section 455 tax is payable at 32.5% of the outstanding loan balance (25% for loans made before 6 April 2016).
    • Anti-'bed and breakfasting' rules apply where a loan is repaid and then a similar sum advanced shortly after
    • (see Subscriber Guide to Directors' loans)

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)

  • If the overdrawn (debit balance) on a director's current account with the company exceeds £10,000 it is treated as an employment-related loan.
  • A taxable benefit will arise on an employment-related loan when the employee does not pay interest to the employer at HMRC's official rate of interest.
  • The taxable benefit is reported on form P11D.
  • More detail and planing tips: see Subscriber Guide to Directors' loans

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 s.455 tax charge to deter tax avoidance using close company loans.

These measures counter the following arrangements where a close company:

  • Makes a loan advance to an LLP in which a member is a participator or associate of a participator.
  • Makes a loan advance to a trust in which a trustee or beneficiary is a participator or associate of a participator.
  • Is party to an arrangement which confers a direct or indirect benefit to a director, or
  • uses 'bed and breakfasting', that is, where a loan is repaid shortly before the 9 month period elapses and a new loan advance is made shortly after.

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.

  • Loan write-offs: different outcomes and reporting.
  • Bed and breakfasting rules: tips and planning points.
  • Worked examples.
  • Accounting entries.
  • Pitfalls and FAQs answered.

see Subscriber Guide to Directors' loans

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