Overdrawn Directors Loan Account
Company rescue solutions
A director’s loan is when you (or other close family members) get money from your company that is not:
- a salary, dividend or expense repayment
- money you’ve previously paid into or loaned the company
If you have an overdrawn director’s loan account, then you owe the company money. Once the accounting period has finished, you have nine months to repay the loan. Failure to do so results in the limited company incurring a substantial corporation tax penalty on the loan.
You may have to pay tax on director’s loans. Your company may also have to pay tax if you’re a shareholder (sometimes called a ‘participator’) as well as a director.
Your personal and company tax responsibilities depend on whether the director’s loan account is:
- overdrawn – you owe the company
- in credit – the company owes you
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Client Story
Shirley and her husband were involved as partners in the purchase of a potential development with another couple. Unfortunately part way through the development the relationship between the 2 couples broke down and Shirley and her husband decided to exit the deal and hand over their share to the other party. This resulted in action taken against Shirley’s husband and he chose to petition for Bankruptcy. At the time no action was taken against Shirley. However, some years later the other party issued a writ against Shirley and entered into a Deed of compromise to repay of £57,000 the debt by monthly repayments. Shirley’s sought advice from The Business Debt Advisor team on Shirley’s behalf. Shirley’s health had been seriously effected by a bout of cancer and the stress of the debt was effecting her recovery. As Shirley and her husband lived in rented accommodation and had minimal assets, it was clear that bankruptcy was really the only sensible option. The Business Debt Advisor team helped Shirley pull together financial information on her assets which were minimal plus her debts and income and expenditure. We helped her complete her bankruptcy application online and her husband who was still working, helped out with the application fee of £680. Within days Shirley was bankrupt and her experience of dealing with the Official Receiver was very positive. They agreed with her that she would affordable pay income contributions of £210 per month for a 3 year period.