# Directors loan account in balance sheet



## apple

Hi 
Could someone explain the workings of a Directors loan account to me. Thanks a million for youre help


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## Brendan Burgess

You probably need to be more specific about your question. In what context does it arise?

It's fairly straightforward in my experience:
If a company is short of cash a director can lend it money. 
When the company has the cash, they repay the loan. 

It is now either illegal or very bad tax practice for a company to lend money to a director, even for a very short period of time. Some years ago, companies used to lend money to their directors and just before the year end, the directors would use bank borrowings to pay off the loan, and reborrow it in the new year. This kept the loan off the balance sheet. This would prompt an investigation from the Director of Corporate Enforcement these days. 

Brendan


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## bazermc

Apple

What do you mean do you want to know the accounting treatment or tax implications? 
Is the loan from the company to director or vica versa
A loan to a director is illegal if it exceeds 10% of the relevant assets! 
Section 31(1) Companies Act 1990

Its also is treated as loan net of standard rate income tax, so must be grossed up and at 80% and the 20% income tax paid over to revenue - this is assuming its a close company e.g a loan of €800 is really €1,000 gross €200 goes to revenue as a liablity

On the other hand there is no issue with a director lending money to a company - no tax issues there except if excessive interest is paid part is treated as a distribution of the company and not deductible for tax purposes for the company - and of course the interest is assessable to income tax in the hand of the director


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## howareya

Is there not some rule where the director must pay back the loan within  6 months??


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## bazermc

There is a rule that excludes the company from deducting standard rate income tax on the gross loan where the debt is incurred from the supply of goods by the company in the oridinary course of business and the credit does not exceed 6 months
Is that what you are thinking of? - otherwise a loan to a director is illegal.


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## howareya

Not really.  In course of working on acs i came across where a director took out a loan from the company and hadn't repaid it by the end of the ac's year end.  when i queried this with my superior he mentioned something that as long as the loan is repaid within 6 months of the year end then it doesn't have to be reported to the Director of Corp inforcement.  Is this totally worng??


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## bazermc

I think you could be right I have heard something like that where there is concessional treatment available if repaid within 6 months but have never seen it in writing so would therefore never accept it

I had a quick search on www.odce.ie but could not find anything - do you want to have a try? - let me know how you get on


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## gobig

Sorry to hijacl this topic but I just saw it being discussed
This is the advice i have been given regarding loans to directors:

[SIZE=-0]Any  loans to employees are treated by Revenue as a Benefit in Kind....they apply a  notional interest rate of 11% & basically apply PAYE/PRSI to the difference  between 11% and the actual interest rate charged.  if you do not apply an interest charge to the loan, then you will need to pay  income tax on 11%...this being the 'benefit'.  [/SIZE]


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## npeters

Hi all

An ex-director of a company i know used company funds for a large (c. £10k) personal use in the tax year 06-07. What are the tax implications for the co? Would this be construed as a "directors" loan? Can  the co get the money back through a simple legal process?
Thx.

Cherers


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## Liamjames

bazermc said:


> Apple
> 
> What do you mean do you want to know the accounting treatment or tax implications?
> Is the loan from the company to director or vica versa
> A loan to a director is illegal if it exceeds 10% of the relevant assets!
> Section 31(1) Companies Act 1990
> 
> Its also is treated as loan net of standard rate income tax, so must be grossed up and at 80% and the 20% income tax paid over to revenue - this is assuming its a close company e.g a loan of €800 is really €1,000 gross €200 goes to revenue as a liablity
> 
> On the other hand there is no issue with a director lending money to a company - no tax issues there except if excessive interest is paid part is treated as a distribution of the company and not deductible for tax purposes for the company - and of course the interest is assessable to income tax in the hand of the director


 

In the case described above, if the Director lending to the company is non irish tax resident does he simply pay at his standard rate in the country he is tax resident. 

Or does he have an allowance or an amount he can earn here tax free?? The individual in question is tax resident in the UK


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