Companies make loans to their directors for a variety of reasons, often as a flexible way to provide short-term access to funds. However, director’s loans need to be carefully managed, as they can carry tax implications for both the director and the company.
In Agent Update 132, HMRC announced it is writing to taxpayers who received director’s loans, between April 2019 and April 2023, which was written off or released and where the amount may not have been declared on their self assessment tax returns.
Under Section 415 ITTOIA 2005, the loan amount is treated as taxable income of the director and must be reported. Failure to do so can result in penalties and interest.
Digital disclosures
HMRC advise agents to make a disclosure for their clients using HMRC’s Digital Disclosure Service (DDS) to report any undeclared income. For loans written off or released before April 2019, agents can still use the DDS to make a voluntary disclosure. For loans written off or released since 6 April 2023, these tax returns are still within the amendment window so changes can be made to the tax returns.
If your clients are affected, act now to ensure compliance and avoid unnecessary costs.
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The October issue includes more detail on director’s loans, including the corporation tax and employment benefit implications.