Unlike Monopoly money Director's Loans must be properly managed.
If you take money out of your limited company that is more than you’ve previously paid or loaned to it, and it’s not a salary or dividend, it’s called a ‘directors’ loan’. 
Unlike Monopoly money, you must keep records of directors’ loans and there are rules about how they should be handled for tax purposes. Here are some things you should know. 

Handling a director’s loan account 

If your company owes money to a director or a director owes money to the company then there should be a record which is called a director’s loan account (DLA). The DLA shows transactions that aren’t a salary, dividend, or expense repayment. 
Although it’s called a director’s loan you can also make private payments to a family member, friend, business partners, or other people you are associated with. These transactions should be recorded in the DLA. If you loaned more money to your company than you borrowed from it then the DLA will be in credit. 

Why would I take out a director’s loan? 

As a director, you might take out a loan from the company because you need short-term help for your personal finances. If you are paid up to the National Insurance threshold through your company’s payroll each month you might also borrow an amount to maintain a regular income that you will repay from your dividend at the end of the financial year. 

Is there a limit to a director’s loan? 

are some implications if you borrow more than you have paid in to the company, which is known as an overdrawn loan account. 
Loans for more than £10,000 should be approved by the shareholders in advance. For small companies where the director and the shareholder are the same person, this is a formality, but approval should still be recorded. 
If the loan is more than £10,000 it will be treated as a benefit in kind and tax will be payable on the loan at the official rate of interest, which is currently 2% per year
It’s up to you and your company to decide what interest is charged on a director’s loan. However, if the interest is below the official rate the discount granted could be treated as a benefit in kind. You could be taxed on the difference between the official rate and the rate you are paying. Class 1 National Insurance (NI) contributions would also be payable at a rate of 13.8% on the full value of the loan. 

Repaying a director’s loan 

If you repay the loan within nine months of the end of your company’s accounting period you won’t have to pay any personal tax. However, your company must show the amount owed at the end of the accounting period on the company tax return
If the DLA remains overdrawn nine months after the end of the financial year, tax will be payable 

How often can I take out a director’s loan? 

You must wait for a minimum of 30 days between repaying one loan and taking out another. It might be tempting to try and avoid corporation tax penalties for late repayment by replacing one loan with another one just before the nine-month deadline, but HMRC regards this as tax avoidance. 
You can also lend money to your company if it isn’t prohibited in the articles of association. However, if the company ever became insolvent, your loan would be treated in the same way as any other unsecured creditor unless it was secured by a charge on your company’s assets. 
Please get in touch if you have any questions about director’s loans. 
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