Yes, you can. It is called a directors loan.
A directors loan consists of any money taken from the company that is not;
- Salary, dividend or expense repayment
- Money you’ve previously paid into or loaned from the company
Who can take one out?
Any director of the company can take out a loan. If you are a sole director, it is up to you to do as you please.
If you are 2 or more directors, there is usually an amount agreed that will need to be consulted on. For example, anything over £1,000 must be agreed upon by both shareholders.
This should always be recorded and signed off on board minutes.
How do you withdraw a directors loan?
You can simply transfer money from the company bank account into your personal account once approved by all shareholders. This must then be accounted for correctly in your accounting software.
When do you need to repay your loan?
HMRC states that you must repay your directors loan nine months and one day after your companies year end.
Let’s look an example:
You take £4,000 out of the company as a directors loan in April 7th 2021.
Your company year-end is March 31st 2022.
You then have until January 1st, 2023 to repay your loan.
Failure to repay your loan within the timeframe will result in a taxation rate of 32.5% applied, regardless of how much income you make during the year. This is called the S455 tax. In certain circumstances, you can get this refunded, once the limited company has received the full amount of the loan. This is a lengthy process though with multiple criteria. See here for more details.
How do you repay your loan?
Simple transfer the amount from your personal bank account to your business bank account. You must then account for it in the same directors loan nominal to show the balance.
What else should you consider when looking at taking a directors loan?
- A big thing to consider when taking money from your company in this way, is whether the company can afford it. Is there a corporation tax payment coming up? Do you have big supplier invoices that need to be paid?
- Note that if you take more than £10,000 in the form of a directors loan, you’ll need to file a P11D as it will be considered a benefit in kind. This will incur a national insurance charge, at a rate of 13.8%. You will also need to declare this on your personal tax return.
Unsure on whether or not you are able to / should draw a directors loan? Get in touch with us at Cooper Financials and we can walk you through the benefits and cons that relate directly to you and your business.
