Can a Director's Loan Account be Advantageous?
If you've been in business for some time, everything may be going rather well, and the company has been growing in size from year to year. In fact, things have been going so well that there's quite a large amount of money in the business bank account, and you may be wondering if you can use that cash for any other purposes. In particular, is there any advantage in using that money for something other than a business reason, and if so, how could you proceed?
Accessing the Cash
As you may well understand, your business (as a limited company) is a separate legal entity. In essence, this means that the money in that bank account is owned by the company and not by the shareholder. Yet you may be able to put that cash to good use and withdraw some of it for a personal reason, so long as you do this the right way and always account for it correctly.
Director's Loan Account
For example, you may want to build an extension to your family home and have been looking at various ways to finance it. You have considered taking a loan from a bank or financier, or you may have even thought about putting a lot of the expenditure on a credit card. However, you may be able to take out what is known as a director's loan account and access some of the funds in your company that way.
If your business can stand it from a cash flow perspective, then you may be able to pay back a certain amount each month on an ongoing basis without any interest involved.
Typically, the tax authority will not look at this as income, per se, so long as it is paid back, but they will keep an eye on what happens. In this case, if you hold onto the money for an extended period of time, then they may levy a corporation tax charge against it. However, you may be able to reverse that charge if you can prove that you repaid the loan in full in the future.
If you're not too familiar with the ins and outs of a director's loan account, talk the situation through carefully with your accountant. They will know what you can and cannot do and how you should account for it properly. Most importantly, they will help to ensure that you always do this the right way.
For more information, contact a company like Pop Business.