{"id":1242,"date":"2022-08-04T12:56:01","date_gmt":"2022-08-04T11:56:01","guid":{"rendered":"https:\/\/accountants247glasgowsouth.co.uk\/?p=1242"},"modified":"2022-08-04T12:56:01","modified_gmt":"2022-08-04T11:56:01","slug":"directors-loan","status":"publish","type":"post","link":"https:\/\/accountants247glasgowsouth.co.uk\/?p=1242","title":{"rendered":"Writing off an outstanding directors\u2019 loan"},"content":{"rendered":"\n<p>Being able to borrow money from your business is one of the perks of being a company director. But many owners\/directors will be coming out of the Covid pandemic with overdrawn directors\u2019 loan accounts (DLAs) \u2013 and without the capital to easily repay these DLAs.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"683\" src=\"https:\/\/accountants247glasgowsouth.co.uk\/wp-content\/uploads\/2022\/08\/chalkboard-1024x683.jpg\" alt=\"directors loan\" class=\"wp-image-1243\" srcset=\"https:\/\/accountants247glasgowsouth.co.uk\/wp-content\/uploads\/2022\/08\/chalkboard-1024x683.jpg 1024w, https:\/\/accountants247glasgowsouth.co.uk\/wp-content\/uploads\/2022\/08\/chalkboard-300x200.jpg 300w, https:\/\/accountants247glasgowsouth.co.uk\/wp-content\/uploads\/2022\/08\/chalkboard-768x512.jpg 768w, https:\/\/accountants247glasgowsouth.co.uk\/wp-content\/uploads\/2022\/08\/chalkboard-750x500.jpg 750w, https:\/\/accountants247glasgowsouth.co.uk\/wp-content\/uploads\/2022\/08\/chalkboard-1140x760.jpg 1140w, https:\/\/accountants247glasgowsouth.co.uk\/wp-content\/uploads\/2022\/08\/chalkboard.jpg 1200w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>So, if you\u2019re an owner\/director in this predicament, what do you do?<\/p>\n\n\n\n<p>We\u2019ve outlined the process for writing off these DLAs, so you can remove this outstanding debt and manage your personal finances in the most tax-efficient way possible.<\/p>\n\n\n\n<p><strong>What happens when a DLA is outstanding and repayments can\u2019t be made?<\/strong><\/p>\n\n\n\n<p>Let\u2019s look at how outstanding directors\u2019 loans can become an issue.&nbsp;<\/p>\n\n\n\n<p>To make the required repayments, you need to have the available funds. But over the pandemic, many owners\/directors will have seen their company revenues drop, cashflow suffer and their own personal income shrink.&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>You may have taken out a loan from your company which is outstanding at the end of the company\u2019s financial year. If this loan isn\u2019t repaid during the following nine months, a&nbsp;<a href=\"https:\/\/www.legislation.gov.uk\/ukpga\/2010\/4\/section\/455#\" target=\"_blank\" rel=\"noreferrer noopener\">section 455 charge<\/a>&nbsp;is levied of 33.75% of the amount borrowed. This is repayable by HM Revenue &amp; Customs (HMRC) nine months after the end of the financial year in which the loan is cleared.<\/li><li>If the loan exceeds \u00a310,000 at any time during the year, there are two potential outcomes. 1) either the interest must be paid to the company by the director, or 2) a taxable benefit equivalent to the unpaid interest will be recorded on your P11D..<\/li><li>Often, the loan will be cleared by declaring dividends. But declaring dividends may not always be possible \u2013 or even desirable. There might not be enough retained profits to cover a dividend, or there may be multiple shareholders who don\u2019t want to either take dividends or give waivers.<\/li><\/ul>\n\n\n\n<p><strong>How does writing off the DLA help?<\/strong><\/p>\n\n\n\n<p>An option is for the company to write-off the loan. If the DLA is written off, this avoids the section 455 charge being levied, or will trigger the recovery process if it\u2019s already become due.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The write-off will be recorded as an expense in the company\u2019s accounts, but won\u2019t be allowable against profits for corporation tax purposes.<\/li><li>From your perspective as a director, the loan amount that\u2019s been waived will be taxed as dividend income for personal tax purposes. HMRC is likely to argue that it\u2019s employment income for National Insurance purposes and may aim to recover both the employee and employer\u2019s National Insurance contributions.<\/li><li>The key here is to demonstrate that the write-off was made in your capacity as a shareholder, rather than it being derived from employment. If you can demonstrate this to HMRC then National Insurance won\u2019t be due.<\/li><li>To bolster that argument, the write-off should be formally approved by the company at a shareholders\u2019 (not directors\u2019) meeting and the reasoning for treating it that way recorded in the minutes. Also, the right to repayment of the loan should be formally released through a legal deed.<\/li><\/ul>\n\n\n\n<p><strong>Talk to us about the treatment of your directors\u2019 loans<\/strong><\/p>\n\n\n\n<p>It may be either impossible or undesirable to clear overdrawn DLAs by dividends and other regular means. In these situations, it\u2019s sensible to think about writing off the loan.&nbsp;<\/p>\n\n\n\n<p>Any write-off needs to be formally approved by your shareholders to avoid National Insurance contributions becoming payable. We can talk you through the process of approving the write-off, recording the decision and ensuring the release of the amount that\u2019s due.<\/p>\n\n\n\n<p>If you have overdrawn DLAs that won\u2019t be cleared in the normal course of events, come and <a href=\"https:\/\/accountants247glasgowsouth.co.uk\/contact-us\/\">talk to us<\/a>. Our South Glasgow office will help you resolve the situation in the most effective and tax-efficient way.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Being able to borrow money from your business is one of the perks of being a company director. But many owners\/directors will be coming out of the Covid pandemic with overdrawn directors\u2019 loan accounts (DLAs) \u2013 and without the capital to easily repay these DLAs. So, if you\u2019re an owner\/director in this predicament, what do [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":1243,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","jnews-multi-image_gallery":[],"jnews_single_post":{"subtitle":"","format":"standard","video":"","gallery":"","source_name":"","source_url":"","via_name":"","via_url":"","override":[{"template":"1","single_blog_custom":"","parallax":"1","fullscreen":"1","layout":"right-sidebar","sidebar":"default-sidebar","second_sidebar":"default-sidebar","sticky_sidebar":"1","share_position":"top","share_float_style":"share-monocrhome","show_share_counter":"1","show_view_counter":"1","show_featured":"1","show_post_meta":"1","show_post_author":"1","show_post_author_image":"1","show_post_date":"1","post_date_format":"default","post_date_format_custom":"Y\/m\/d","show_post_category":"1","post_reading_time_wpm":"300","zoom_button_out_step":"2","zoom_button_in_step":"3","show_post_tag":"1","show_prev_next_post":"1","show_popup_post":"1","number_popup_post":"1"}],"image_override":[{"single_post_thumbnail_size":"crop-500","single_post_gallery_size":"crop-500"}],"trending_post_position":"meta","trending_post_label":"Trending","sponsored_post_label":"Sponsored by","sponsored_post_name":"","sponsored_post_url":"","sponsored_post_logo":"","sponsored_post_desc":""},"jnews_primary_category":{"id":"58"},"footnotes":""},"categories":[58],"tags":[],"class_list":["post-1242","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.2 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Writing off an outstanding directors\u2019 loan<\/title>\n<meta name=\"description\" content=\"Do you have outstanding directors\u2019 loans to repay? 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