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Directors loans to the Company – Should a director charge interest and at what rate?

A director/shareholder  lent money to the company. Should the director charge interest- as we intend for the interest to be deducted for tax purposes. And what rate should he charge?

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    admin

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    Dear Sir/Madam

    Yes the director can charge interest on the director’s loan.There are no legal restrictions on lending money to a company, and no adverse tax issues for the company or the director / shareholder. The interest can be deductible from company profits as an expense as long as there is written documentation showing that the company agreed to pay the interest and that the rate be commercial and linked to bank rate. However any interest is normally tax neutral in terms of being an allowable expense for the company and chargeable to tax for the lender.

    Also worth mentioning that in the case of lending to the company and the director has other balances like current accounts or shareholder funds with the company, those funds can end up being pooled together/ set off against each other.

    For these reasons its often best avoid directors loan or charging interest unless necessary.

    Hope this helps.

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