A Director’s Loan Account deals with money a director puts into or takes out of a company, except for regular payments like salary or dividends.
These transactions are recorded to check if the account is overdrawn, which affects tax for both the director and the company.
If the account is in debit, it means the director owes the company money.
If it's in credit, the company owes the director.
Using money within the available balance doesn’t incur tax or reporting duties. But going over this balance can lead to tax issues. Particularly for companies with outstanding balances at the end of the financial year, there is a tax charge called Section 455 (S455).
This tax, at a rate of 33.75% of the outstanding balance, must be paid if the loan isn't settled within nine months of the company's financial year-end.
It’s important to note that S455 only applies to the extra amount drawn during the tax year.