Sarah Bradford looks at the tax and National Insurance contributions implications of writing off a director’s loan account.
In a family or personal company scenario, director’s loans can be very beneficial. Where there is a close relationship between the director and the company, it is easy for the boundaries to become blurred; the director may meet company debts personally and the company may pick up the tab for some of the director’s personal liabilities. A director’s loan account is the mechanism for keeping track of these transactions.
However, where the company is a ‘close’ company (as family and personal companies generally are), there are implications associated with making a loan to a director, and these need to be taken into account. Broadly, a company is a ‘close’ company if it is under the control of five or fewer shareholders.