Directors Loans

Can I take a loan from my Company ?

YES you can, however..........

If a payment is made  to a director and it does not form part of the director’s remuneration package or is not an allowable expense for the company, the payment must be  set against their director’s loan account.

This can have two implications:

1. Corporation Tax Charge    

Firstly, if a balance remains outstanding on a director’s loan account at the company’s year-end, this can lead to an income tax charge on the company. The income tax charge is 20% of the total benefit. So for example if there is a loan balance of €20,000 the total benefit is treated as €20,000/80% = €25,000.  The company must then pay €5,000 to the Revenue as an income tax charge. If the director repays this within 4 years the company can request a refund of this income tax payment from Revenue.

2. Benefit in Kind  

The second implication of an overdrawn director’s loan account is that it can trigger a benefit in kind. An overdrawn director’s loan account is effectively an interest-free loan. The benefit would be equal to the interest that would have been charged by an unrelated party (the calculation of which is stipulated by Revenue). 

 

3. Other considerations
 

If the loan is not repaid and is forgiven by the company the director will be liable to income tax on the full amount of the loan. The company is not entitled to any tax deduction for the forgiveness of this loan

If the director is unable to repay the director’s loan account then the company may be able to put the loan through as an additional salary. The company will have to pay PAYE/PRSI on this salary.