Directors Loan Interest

shelleym

Hi All
I am hoping to clear up a query to do with directors loan interest. The situation i have is that my client has a large directors loan and he would like to charge the company loan interest to create a loss but he doesn't want to pay it and deduct the 20% tax he wants to save it in a director loan interest due account until he has paid back the directors loan which will probably never happen before he closes the company to retire. My question is this allowed?

Many thanks in advance.

MarieNoelle

I am confused. Who owes money to whom?
First part of your question implies that the company owes the director money, on which the director is entitled to charge interests at a reasonable commercial rate. The company must pay the interest with 20% withheld at source and file CT61 returns. Now he may choose to actually get the money or leave it on his director's account.
Where the confusion arises is that the second part of your sentence mentions that he has an overdrawn account. Please could you clarify? Thanks

shelleym

Hi Marie

the company owe's the director money which he is charging interest for although he never actually pays the interest he accrues it in a loan interest due to director account.

MarieNoelle

In this case my first comment stands. Whether the director actually receives the money is irrelevant, if the company deducts the interests from its accounts, the director has to declare it as income. Plus the company must fulfil its obligation by filing a CT61 return.

shelleym

many thanks Marie

MarieNoelle

Thanks for this, I stand corrected.
Just to clarify your last reference to CMF35830 wouldn't this mean the interest is deemed paid therefore taxable on the director? I fail to see how the company can get a tax deduction without the director incurring a tax charge.

MarieNoelle

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim9100

https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm35830