Changes to how your director’s loan functions

One way to lower your tax bill is to borrow money from your own limited company, as long as you repay it within 9 months of the company’s year-end.  Rules around this area are being tightened up and you need to know how to continue to benefit from this tax planning opportunity…

Up until recently, as you may be aware, most directors of limited companies run an account with themselves, within their limited company; the director’s loan account. This has always been a cost effective way to borrow money, resulting in zero tax charge provided the loan is repaid to the company within 9 months of the company year end. HMRC are in the process of amending rules and regs so if this applies to you, or even to educate yourself for the future, check in with your accountant to ensure you don’t get caught out. Currently, if a  loan to the company is in effect and a repayment is made to clear this or part clear it, but funds are then loaned again shortly after, there is no system in place to prevent this. In fact, this is a popular and currently legitimate tax strategy based on clever timing. Moving forward this should still work as a method. The difference lies in the paperwork that needs to be present at the year end to support a repayment plan of any such loan, within 9 months or thereafter.