You often hear about overdrawn director loan accounts and the relevant tax issues but not so much about the opposite case: director loan accounts that are in credit...
Directors loan accounts that are in credit provide a valuable tax planning opportunity that is about to become a lot more interesting (see more below).
For now, here is the crux of the tax planning opportunity:
You lend cash to your company for which you charge a commercial rate of interest. The company receives the benefit of a corporation tax deduction at a rate of 25% (from April 2023) on the interest payments. You receive a passive income in the form of interest taxed at 20%, 40% or 45% with £nil National Insurance suffered.
You essentially become your company's own private bank.
Why raise this planning opportunity now and how does it work?