EIM26505 - The benefits code: beneficial loans:
interaction between employment income and other tax charges:
director's current or loan accounts with a close company
When reviewing a director's current or loan account with a
company, an Inspector should bear the following in mind.
- If the directors own all the share capital
of the company and either formally or informally decide that sums
being withdrawn by them from the company are remuneration, or on
account of remuneration, the withdrawals are not loans. PAYE should
be applied at the time of the withdrawal. Withdrawals are
assessable as remuneration in the year in which they are received
(see
EIM42270).
- If the directors make withdrawals that are
not remuneration or on account of remuneration, the withdrawals may
put the directors in debt to the company. If they do, charges on
beneficial loans may arise unless they fall within one of the
exemptions (see
EIM26132).
- Interest paid on a debt incurred by
overdrawing an account, or under similar arrangements, does not
qualify for relief under Section 353 ICTA 1988 (see Section
353(3)(a) ICTA 1988). Whilst this provision is more commonly
applied to bank overdrafts, it applies equally to a director's
overdrawn current account with his or her company. It follows that
no part of the interest or notional interest on an overdrawn
current account will be eligible for relief under Section 353 ICTA
1988 irrespective of the use to which the money is put.
