Tax implications of director’s loans

Director’s loans can provide a useful mechanism, in the right circumstances, to release funds to shareholders, perhaps before dividends are due and sometimes in a more tax efficient way than drawing a salary out of a company. John McCaffery, tax partner and head of tax at Alexander & Co Chartered Accountants explains

For a director to take out such a loan and take advantage of the tax benefits, they must be a shareholder of the company, so the name is slightly misleading and they would be more accurately referred to as shareholder loans.

There are tax implications both for shareholders taking out these loans and the company which issues it. Understanding these will help make sure that both shareholders and their companies remain as tax efficient as possible. Below is a summary of the tax implications of these loans that apply to shareholders and their companies

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