Pay off your Directors Loan and reclaim Corporation Tax

If you’re a company director or ‘participator’ and take money out of your company that’s not a salary or a dividend – over and above any money you’ve put in – you’re classed as having received the benefit of a director’s loan.

If your director’s loan account is not paid off in full within nine months after the end of your company’s accounting period:

  • You must include details of the loan in your Company Tax Return.
  • Your company must pay Corporation Tax on the loan – the current tax rate for directors’ loans is 25 per cent of the loan.

The good news is that you can reclaim the tax when the loan is repaid (often by paying a Dividend to clear the balance outstanding).

How you do this depends on timing:

  • if your claim is made within 24 months of the end of that accounting period you can amend and resubmit an amended Company Tax Return for that previous accounting period
  • if your claim is made more than 24 months after the end of the previous accounting period you can make a separate claim by writing to HMRC at the same time as you file your Company Tax Return for your most recent accounting period

The Claim was previously known as a S419 claim (S419 ICTA 1988) but its now covered by S455 and S458 Corporation Tax Act 2010

When writing to HMRC makesure you give them as much information as you can for example:

UTR – Unique Taxpayer Reference

Company Name and Details

Amount being reclaimed

Details of the relevant Corporation Tax Returns on which the Directors Loans are shown

Your Bank Account Details for the Refund

You would be surprised at how many businesses never reclaim the S419 tax! makesure you don’t miss out

3 thoughts on “Pay off your Directors Loan and reclaim Corporation Tax

  1. First comment – this situation should be avoided by ensuring that dividends are maximised without incurring a higher rate tax charge for the director/ participator, his or her spouse and all children, of any age. i.e. some Β£45,000 each.

    Second comment – if paying as a dividend would incur a marginal rate income tax charge at 40% or 50% then paying tax at 25% may be a good deal.

    HMRC impose an interest rate of, currently, 4% on loans provided interest free. This is then a benefit-in-kind declarable on a form P11D each year. There are severe penalties for not filing completed forms P11D by 19 July following the end of the tax year. These START at Β£100 per month. The whole P11D procedure can be avoided by charging the interest.

    Peter Lashmar
    Lashmars Tax Accountants

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