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Writing off directors’ overdrawn loan accounts: Don’t forget NICs charges!

By Kevin Read, July 2020

Kevin Read explains the different treatment for income tax and National Insurance contributions purposes when an overdrawn directors’ loan account is written off. 

It is common for director shareholders of owner-managed business to build up an overdrawn loan account during an accounting period, with a view to subsequently either clearing the loan by a dividend or getting the company to write off (waive) the loan.  

Loan write-offs are particularly common if the company cannot pay a dividend to the director that would clear the loan. This could be because there are insufficient distributable profits (which, sadly, may become very common following Covid-19) or, where there are several shareholders who all have the same class of share, paying the dividend would involve paying sizeable dividends to other shareholders too.  


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