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Private companies are permitted to make loans to their directors, provided that shareholder approval is obtained.

The main tax implications of loans from companies to their directors are:

1. •

   a possible taxable benefit in kind for the director, and

2. •

   a tax liability for the company where the loan is unpaid nine months after the period end, if the director is also a participator, the rate of tax is 33.75%. The percentage rate of the tax charge is based on the dividend upper rate for the tax year in which the loan is made

This is dealt with in more detail below, together with some ideas for dealing with directors’ overdrawn loan accounts. In practice, controlling directors having overdrawn loan accounts is very common. This is particularly the case where they have previously operated as an unincorporated business and drawings did not have repercussions on taxation.