Mark McLaughlin looks at a potential tax implication on the release or write-off of an overdrawn director’s loan account balance.
Most owners of family or owner-managed companies extract profits from the business as a salary (and possibly bonus) or dividends.
Director’s money box?
However, some director-shareholders treat the company like their private ‘money box’ and withdraw funds for private purposes when needed, which represent neither remuneration nor dividends.
These withdrawals are generally treated as loans from the company to the director, which are debited to a ‘director’s loan account’ (DLA). The company is generally liable to tax (at 33.75%) on such loans, which is refundable if the debt is repaid (e.g., by offsetting salary or dividends against it), or until the balance is released or written
