You can save a great deal of tax by avoiding an overdrawn director’s loan account (DLA). In other words don’t take more money out of the company than the dividends and expenses that have been allowed (see previous tips).
If your DLA is overdrawn at the end of the year and not repaid within 9 months of the year end the company will have to pay S455 tax at 33.75%. This can be reclaimed on the next tax return if the loan has been repaid (but you can’t repay it then taken out again!)
If your DLA is more than £10k overdrawn at any time in the year you will incur a personal benefit in kind (unless you pay the company interest on the loan). The company will also pay class 1A national insurance on the notional interest. The rate of interest is set by HMRC each year.
We want you to pay the right amount of tax and not waste your hard earned money on unnecessary penalty taxes like these. Regular, up to date bookkeeping will ensure that you keep track of your DLA.