The deadline for filing a P11D is the 6th of July, and if you have a director’s loan it will need to be declared. In this article we’ll look at how a director’s loan can affect your P11D, and what action you need to take as a Limited company director.
What is a director’s loan?
Any money that you take out of your Limited company that is not either salary, dividend or expenses payment, must be recorded in your Director’s Loan Account (DLA). This includes loans to a spouse or family member.
At the end of your company’s financial year, you will either owe the company money, or the company will owe you. This should be recorded as an asset or a liability in your company accounts.
Director’s loans can be a useful way to cover unexpected expenses, or bridge a gap temporarily until funds are available to pay a dividend. It’s important to remember that this money has not been subject to personal or company tax, and this will need to be corrected.
When director’s loans are declared on your P11D
Your P11D will summarise what happened to the director’s loan account during the tax year, rather than the company’s accounting year. If your P11D(b) is late, you will be charged a penalty of £100 per 50 employees for each month or part month the return is overdue. You’ll also be charged penalties and interest if you pay HMRC late.
Additional Tax due on your director’s loan
Tax owed by your company
If you owe your company money at the year-end, you have 9 months and 1 day to pay back the loan. If you pay the whole loan back in this time, you will not owe any additional tax via your Limited Company.
If you miss this deadline you will need to pay additional corporation tax at 33.75% on the outstanding amount, called S455 charge. This amount will be repayable by HMRC when you’ve repaid the loan to the company, if repaid within 4 years.
Tax owed by you
There may be personal tax at 33.75% if you don’t pay back your director’s loan. This amount will not be refunded.
If you owe your company more than £10,000 (interest free) at any given time, this will be classed as a benefit in kind and additional personal tax will be due. The value of benefit in kind is calculated using HMRC’s official interest rate.
You will have to pay personal tax on the value of the benefit in kind, and your company will have to pay class 1A National Insurance at 13.8%.
If you pay interest on the loan at the official rate or above, no benefit in kind will be incurred. Any interest you pay must be recorded as income for your company, and company taxes may be due.
If you have questions or if we can help in any way please call our expert team on 0129 6486483 or email info@orangegenie.com.