Tax charges to rise on loans to directors
The tax charge when a director, who is also a participator, has an outstanding loan with a close company is going up by two percentage points to 35.75% from 6 April 2026.
Very broadly, a participator is a shareholder in the company, and a close company is one controlled by five or fewer participators.
Overdrawn loan account
Loans between a director and their company are fairly common, and there are various reasons why a director’s loan account can end up overdrawn. An overdrawn director’s loan account will normally be cleared by voting the director a dividend or bonus, but there are situations where this is not done This could be because the tax implications are prohibitive for a particular tax year, or because the company does not have sufficient profits available to pay a dividend.
When the tax charge applies
The tax charge is payable when an outstanding loan is not repaid within nine months and a day of the end of the company’s accounting period.
For example, on 15 April 2026, a director withdraws £150,000 from their personal company to help fund a private property purchase. The company has an accounting date of 31 March:
- The loan falls in the company’s year ending 31 March 2027, so there will be no tax charge if it is repaid by 1 January 2028. By careful timing, the director can make use of company funds for over 20 months, with the only tax being what is charged on the director for having a beneficial loan.
- If not repaid by 1 January 2028, the company will have to pay a tax charge of £53,625 (£150,000 at 35.75%) along with its corporation tax liability.
The tax charge will be refunded by HMRC if – after 1 January 2028 – the loan is repaid or written off.
HMRC’s basic guidance on loans to director can be found here.
