Clearing Director's Loan Account

Accounting
1

Hi Folks,

Admittedly more of an accounting best practice query rather than QuickFile specific - shoot me down if I’m taking the proverbial…! (And my apologies).

I have been running for around six months now and have accumulated a Director’s Loan (~£750) by purchasing insurance, web hosting services etc.; the funds came from my personal bank account.

My company is now in a position to clear the loan (presumably by effecting a single bank transfer from my company business account back to my personal account). It is my intention not to use the Director’s Loan account again in the future as the company should now be self-sustaining and I see no need for significant cash injections/investments…

So my questions are more about accounting principle and tax efficiency:

  1. I assume this proposed transaction would be of a similar nature to an employee’s claiming mileage expenses reimbursement; full payment with no tax implications for the receiving end (i.e. my personal bank account)?

  2. Is there any reason I shouldn’t repay/clear the Director’s Loan? - I only ask as somebody mentioned in passing some months ago that it was a pointless thing to do and probably not tax efficient (I failed at the time to get an explanation of why that should be!)?

The final background piece is that I will, for this tax year be coming in under the £11,000 personal income tax threshold.

Thanks in anticipation…

2

I’m not an accountant, but my limited understanding is that you only have to worry about tax with a director’s loan if you’re borrowing from (rather than lending to) the company and keep the loan for an extended period of time, or if you’re charging the company interest on the money you’ve lent it (in which case the interest payments count as expenses for the company and personal income for you). If you’re not charging interest then it makes no difference tax wise whether you clear the loan or not.

https://www.gov.uk/directors-loans/you-lend-your-company-money

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3

Thanks Ian, Any more views out there?

4

I would second @ian_roberts, you should be able to repay the funds anytime you wish, it’s not taxable income.

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