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Directors' Loan Accounts Explained

**New 2019-20 Edition Released January 2019**

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A director’s loan account is a mechanism of keeping track of the transactions between the director and his or her personal or family company. In this guide, Sarah Bradford explains some of the planning opportunities and pitfalls associated with the use of directors’ loan accounts.

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Contents include:

1. Nature Of A Director’s Loan Account

2. Overdrawn Director’s Loan Account

2.1 Overdrawn Account Repaid Within Nine Months Of End Of AP

2.2 Overdrawn Account Still Outstanding Nine Months And One Day After End Of AP

2.3 Overdrawn During The Year

3. What Is A Close Company

3.1 Who Is A Participator?

3.2 Why Does It Matter?

4. Meaning Of `Loan’

4.1  What Is Not A Loan?

4.1.1 Unpaid Share Capital

4.1.2 Supply Of Goods And Services

4.1.3 Small Loans

4.1.4 Loans In The Ordinary Course Of Business

4.1.5 Amounts On Which Income Tax Is Paid

4.1.6 Loans To A Charitable Trust

4.2 Indirect Loans

5. Section 455 Charge

5.1 Nature Of The Section 455 Tax Charge

5.2 Amount Of The Section 455 Tax

5.3 Payment Of The Tax

5.4 A Temporary Tax

5.5 Timing The Loan Repayment

5.6 Claiming A Section 455 Tax Repayment

5.7 Giving Effect To A Section 455 Tax Repayment

6. Clearing An Overdrawn Director’s Loan Account

6.1 Introducing Funds

6.2 Declaring A Dividend

6.3 Paying A Salary

6.4 Paying A Bonus

6.5 Writing Off The Loan

7. Benefits-In-Kind Charge

7.1 No Charge On Loans Less Than £10,000

7.2 Other Exemptions

7.3 Tax Charge On Cheap Loans

7.4 Class 1A Charge

7.5 Reporting The Benefit

8. Tax Planning Opportunities

8.1 Enjoy An Interest-Free Loan Tax-Free For Up To 21 Months

8.2 A Cheap Source Of Finance

8.3 Clear The Loan To Avoid A Section 455 Charge

8.4 Choose The Lowest Tax Rate

8.5 Consider Cashflow

8.6 Choose Which Loan Is Repaid

9. Anti-Avoidance

9.1 The Bed And Breakfast Trap

9.2 The 30-Day Rule

9.3 The Intentions And Arrangements Rule

9.4 Arrangements Conferring A Benefit On A Participator
10. Account In Credit

11. Toolkit
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