This is an article covering the potential tax consequences of taking a director's loan from your UK limited company.

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LOANS TO DIRECTORS AND SHAREHOLDERS
Technicallyspeakingcompaniesare forbiddenbythe CompaniesActfrommakingloanstodirectorsor
shareholders.
But it goesonall the time,whichiswhythere are twosetsof potential tax consequencesconnectedwith
such loans.
The firstis loan to an employee (incontextadirectorisan employee):
Thisappliesonly where the amountloanedexceeded£10,000 at anytime duringa tax yearand where
the employee hasnotpaidat least 2.5% (the presentofficial rate) interesttothe employer.
Such loans have to be reportedonthe PAYE yearendform P11D. Using ratespublishedby HMRevenue
& Customsthe employerhastocalculate the so calledbeneficial loaninterest(i.e.the interestthe

2. borrowerhasnot paidto the employer) onthe P11D and viathat formand the employee’spersonal tax
Returnthe employee will have topaytax at whateverhistoprate of tax is.
Furthermore the employerhastopay Class1A National Insurance Contributions (presently13.8%) onthe
same calculatedinterest.The Class1A ispaidjustonce per year,on or before 19 Julylookingbackat the
previous5April.
A loanto a spouse of a directorwouldbe deemedtohave beenmade tothe director.Theyhave thought
of thatone.
There ismore tax efficientwayof dealingwithabove.If the directorpayshiscompanythe intereston
the loanthenthere isno requirementforthe loantobe reportedonform P11D. Thismay come as a cost
to the directorhoweverthisinterestbecomescompanyincome of whichthe bottomlineisprofit
available tobe paidas dividendsbacktothe directorand underthisscenariothe tax sufferedisthe 19%
CorporationTax by the companyas opposedto13.8% Class1A National Insurance bythe companyand
income tax on the individualathishighesttax rate (20% or 40%) underthe P11D route.
The secondis loan to a share holder:
If a companyhas made a loanof any amount,node-minimisinthis,toashareholderandif thatloanhas
not beenrepaidbythe shareholdereitherduringthe company’sfinancial yearwhenthe loanwas
advancedor duringthe nine monthswhichnextsucceedthe company’sfinancialyearendthen…
…the companyhas to pay an additional sortof corporationtax,whichwe call Regulation455 tax,of an
amountequal to 32.5% of the loanstill notrepaidbythe endof the nine monthsmentionedabove.
Ultimatelythe R455 tax isrefundable tothe company,9 monthsafterthat companyfinancial yearwhen
the loanwas repaid.
In between timesthe companyhastantamountloanedthe tax tothe Government!
It isof course possible thatthe borrowercould be bothan employee andashareholder,inwhichcase
both tax consequencescouldapply.