On review of my client’s draft company accounts, it is noted that the director has created a large overdrawn director’s loan account. I am considering charging interest to the director’s loan account in order to prevent the benefit in kind from arising. Would an accrual in the accounts be sufficient to avoid the P11D requirements?

I can confirm that just accruing the interest to the accounts is not sufficient to avoid the benefit in kind charge.

A benefit in kind on an overdrawn director’s loan account needs to be considered as soon as the loan is overdrawn by more than £10,000.

To avoid the benefit in kind charge, the director needs to pay interest to the company at a minimum rate of the official rate of interest ( 3.75% for 2025/26 tax year), as defined by section 175 ITEPA 2003, which states the interest which can be deducted from the benefit in kind is ‘the amounts of interest actually paid on the loan for that year’.

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