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How does a director’s loan really work? As budding business owners, it becomes important to understand its benefits and implications – as a failure to do so might lead to undesirable tax bills or missed opportunities for your company.
In this blog post, we aim to understand the director’s loan account, consequences from an overdrawn account and general planning points you could consider.
Your director’s loan account is essentially where the amount of money you borrowed from or lent to your company is recorded.
For example, when money is withdrawn from your organisation for a director’s private purchases, this is automatically reflected as an amount owed to the company on your loan account. These loans can either be claimed in cash or from the company’s credit card.
On the other hand, an amount becomes owed to the director when s/he injects cash into the business or only partially withdraws their salary during a certain period of time.
Of course, withdrawing loans from your company (and vice versa) can ensure smoother operations for your business – provided they are repaid in time.
An overdrawn loan account might create tax complications that are comparatively harder to overcome in the long-term.
What are some tax implications you should make note of before withdrawing your loans?
How can you organise your loan withdrawals in an efficient and fuss-free way? Here are some general planning points you could consider for your own business:
Short of time in calculating your interest-rates, tax-charges and the like? Get in touch – Right Accounts is here to help you with your needs.
You can contact us here.
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