Pitfalls of the Directors Loan Account

Posted by alisoncollier - March 4, 2019 9:37 am Pitfalls of the Directors Loan Account

What you need to know

When you business is doing well

If your company is healthy and solvent it doesn’t really matter that you as a director draw personal expenditure from the company bank account and your accountant adds them to your directors overdrawn loan account.  The most you are likely to have to worry about is having to pay some tax on the loan.

Maybe instead of drawing a salary you regularly take out money and at the year end these are adjusted by your accountant as wages or dividends, depending on what your accountant believes is the best  method for you own personal  taxation, which again is also fine while the company is solvent.

When your business isn’t doing so well

As soon as the company starts to face financial worries, the treatment of the loan account begins to become more of a concern.

If the company enters into an insolvent procedure and you as a company director owe money to the company by way of an overdrawn directors loan account, the liquidator will be requesting that this money is repaid to the company.

Liquidators have a duty to examine the books and records of the company and will look for any payments made to the director in at least the last year of trading.

It is therefore vital that if your company is showing signs of struggling that you seek early advice regarding how you are drawing money from the company.

If you require any further assistance please call me or Amanda Ireland.

Alison