Benefit In kind

 

If the balance of your Director’s Loan account is more than £5,000 overdrawn (i.e., you owe the company more than this amount), HM Revenue and Customs will consider that you are enjoying a benefit in kind from the company and you will pay a charge on this. No benefit in kind charge would apply if you paid interest on the loan at the official HMRC rate (currently 4%). As well as increasing the amount you need to repay, paying interest on the loan could increase your company’s taxable profits.

Going back to the example above, the company has overdrawn director’s loan account balance of £10,000. The company can either charge interest of 4% or above on 10.000 and add it to the companies profile and increase the director’s overdrawn account by the interest amount or treat as benefit in kind for the director. In case of benefit in kind the interest (10,000*.04=400) will be disclosed on director’s P11D and will be subject to income tax of 20% if the director already has other income to cover the personal allowance which is £7474.

It is advised to pay interest on the overdrawn director’s loan as the treatment of benefit in kind can be administratively complex.

 

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