We previously gave a short introduction to the Director’s Loan Account and what this is used for. It is fairly common for owner Director’s to invest their own cash into a limited company, especially during the early years and this might be to buy stock for example to get the business started. A question that is often asked is how do I repay myself this loan and do repayments attract any tax? This blog post will address these specific issues directly and provide answers to what is a commonly asked question. The comments below will consider a director’s loan made by the director to the company and is currently owed to the company.
Repaying yourself from the limited company
It is a fairly simple process to extract cash from your limited company to repay you for the cash that you have previously loaned to the company. We recommend that you take the following steps:
1. Understand how much you are owed by the company – taking more than the sum owed to you can have tax implications
2. Check that the company has sufficient cash to repay you
3. Then simply complete the bank transfer to action your repayment
What about taxes?
The good news is that there are no tax implications of receiving a repayment of a loan you have made to a limited company. You can repay yourself the outstanding balance in full and this then doesn’t need to be declared by you as income for income tax purposes.
Repaying any loan is often the first step you should take before taking any dividends from the company as dividends are taxable income under the dividend tax rules.
Does the company need to make a profit?
The company doesn’t actually need to make a profit before you can be repaid a director loan. As long as the company has sufficient cash to repay you then a repayment can be made.