assignment of directors loan account

What approvals are needed to transfer a director's loan account from one director to another?

In order to transfer A's rights and obligations under the existing loan, A, B and the company will need to enter into a novation agreement. For suitable precedents, see Novation agreement—long form and Short form letter of novation.

The effect of the novation agreement will be to create a new loan agreement between the company and B in substitution for the previous agreement between the company and A. Under section 197(1) of the Companies Act 2006 ( CA 2006 ), a company may not make a loan to a director unless the transaction is approved by the members of the company. The term ‘director’ for these purposes

Access this content for free with a 7 day trial of LexisNexis and benefit from:

• Instant clarification on points of law
• Smart search
• Workflow tools
• 41 practice areas

** Trials are provided to all LexisNexis content, excluding Practice Compliance, Practice Management and Risk and Compliance, subscription packages are tailored to your specific needs. To discuss trialling these LexisNexis services please email customer service via our online form. Free trials are only available to individuals based in the UK, Ireland and selected UK overseas territories and Caribbean countries. We may terminate this trial at any time or decide not to give a trial, for any reason. Trial includes one question to LexisAsk during the length of the trial.

Get your quote today and take step closer to being able to benefit from:

• 36 practice areas

Get a LexisNexis quote

* denotes a required field

To view the latest version of this document and thousands of others like it, sign-in with LexisNexis or register for a free trial.

Existing user? Sign-in CONTINUE READING GET A QUOTE

Related legal acts:

• Companies Act 2006 (2006 c 46)

Key definition:

Substitution definition, what does substitution mean.

The process whereby a divorcing spouse with a poor national insurance contribution record may substitute this for the better national insurance contribution record of their spouse to increase their basic state pension. This is no longer available for spouses who reach state pension age after 5 April 2016.

Popular documents

Are the words 'limited' and 'ltd' interchangeable when referring to a company name.

Are the words 'Limited' and 'Ltd' interchangeable when referring to a company name?The choice of a private limited company name, whether on incorporation or on a subsequent change of name, is subject to a variety of requirements and restrictions, which include, under the Companies Act 2006 (CA

What is the meaning of 'control' in a private company limited by shares?

What is the meaning of 'control' in a private company limited by shares?From a company law perspective, ‘control’ can mean having the ability to:•control the management of the company (eg the ability to appoint or remove directors the majority of the directors)•exercise a majority of the voting

Scotland—the process for applying for sequestration

Scotland—the process for applying for sequestrationSequestration in Scotland is the legal process by which an insolvent debtor’s estate is gathered in, realised and then distributed among their creditors by a trustee appointed for that purpose. The process requires that a formal award of

Micklefield clauses

Micklefield clausesWhat is a Micklefield clause?It is common for employee share plans to provide that, on termination of employment (or when an employee is given or receives notice of termination of employment), subsisting share awards will be forfeited and subsisting share options will lapse.It is

0330 161 1234

• International Sales(Includes Middle East)
• Latin America and the Caribbean
• Netherlands
• New Zealand
• Philippines
• South Africa
• Switzerland
• United States

Popular Links

• Supplier Payment Terms
• Partner Alliance Programme

HELP & SUPPORT

• Legal Help and Support
• Tolley Tax Help and Support

LEGAL SOLUTIONS

• Compliance and Risk
• Forms and Documents
• Legal Drafting
• Legal Research
• Magazines and Journals
• News and Media Analysis
• Practice Management
• Privacy Policy
• Cookie Settings
• Terms & Conditions
• Data Protection Inquiry
• Protecting Human Rights: Our Modern Slavery Agreement

Directors Loan Overview for Financial Professionals

Explore the intricacies of directors' loans, their tax considerations, and accounting practices essential for financial professionals.

Directors’ loans stand as a notable feature in the financial landscape of corporate governance, often utilized by company directors. These loans can be complex, with implications for both the individual and the corporation’s finances.

Understanding these transactions is crucial for financial professionals who must navigate the intricate rules and regulations that govern them. The importance lies not only in compliance but also in strategic financial planning and management.

Nature and Purpose of Directors Loans

Directors’ loans are financial transactions where a director borrows funds from their company or lends money to it. These loans serve various purposes, from covering short-term personal financial needs to facilitating business-related investments that may not be immediately fundable through traditional means. They offer a flexible financing option, allowing directors to leverage company resources in a way that can benefit both the individual and the company, provided the terms are fair and in the company’s interest.

The flexibility of directors’ loans can also be instrumental in tax planning. By timing the borrowing and repayment, directors may optimize their tax positions, although this requires careful consideration of the tax rules to avoid unintended consequences. Moreover, these loans can act as a tool for cash flow management within the company. When external financing is either too costly or not readily available, a director’s loan can provide the necessary liquidity to keep operations running smoothly or to seize a timely business opportunity.

Tax Implications of Directors Loans

The fiscal landscape surrounding directors’ loans is nuanced, with various tax implications that hinge on the specifics of each loan. When a director borrows from their company, it can trigger a tax event under certain conditions. For instance, if the loan exceeds a specified amount and is not repaid within a designated timeframe, it may be treated as a benefit in kind. Consequently, this could result in a personal tax liability for the director, typically charged under the income tax framework.

Additionally, the corporation may face a separate tax charge if the loan is written off or released. This is because the write-off is considered a distribution of assets, akin to a dividend, and is subject to corporation tax. The intricacies of these tax events underscore the necessity for meticulous record-keeping and a thorough understanding of the tax code to ensure compliance and prevent unexpected tax liabilities.

Accounting for Directors Loans

The accounting treatment of directors’ loans is a critical aspect of financial reporting and requires careful attention to ensure accuracy and compliance with relevant accounting standards. The process involves precise documentation and the correct application of accounting principles to reflect the true nature of the financial transaction in the company’s accounts.

Recording the Loan

When a director’s loan is issued, it must be recorded as either an asset or a liability on the company’s balance sheet, depending on whether the company is the lender or borrower. The loan should be documented with a formal agreement, detailing the amount, terms, and repayment schedule. This agreement serves as the basis for the accounting entries. The initial entry typically involves a debit to the directors’ loan account, a type of receivable if the company is the lender, or a credit if the company is the borrower, with the corresponding credit or debit to the company’s cash account. It is essential to maintain a separate ledger for such transactions to ensure transparency and facilitate monitoring.

Interest Treatment

The treatment of interest on directors’ loans is another area that demands careful consideration. If interest is charged on the loan, it must be recorded in the company’s financial statements. The rate of interest should be at least equal to the market rate to avoid additional tax consequences; otherwise, it may be perceived as a benefit in kind. Interest received by the company is recorded as income, and any interest paid by the company is recorded as an expense. These entries affect the profit and loss account and can influence the company’s reported financial performance. It is important to note that the accrual basis of accounting requires interest to be recorded as it is earned or incurred, not necessarily when it is paid, which can lead to timing differences in the financial statements.

Components of Loan Agreements

A director’s loan agreement is a formal document that encapsulates the terms of the financial arrangement between the director and the company. It begins with the identification of the parties involved and the declaration of the loan’s purpose, ensuring that the intent aligns with the company’s interests and is transparent to all stakeholders. The principal amount of the loan is clearly stated, providing a baseline for all subsequent calculations and terms.

The agreement also outlines the repayment schedule, which includes the frequency of payments, whether monthly, quarterly, or at irregular intervals, and the loan’s maturity date. This schedule is crucial for both parties to understand the cash flow implications and to plan for the financial obligations that arise from the loan. Additionally, the agreement may specify conditions under which the loan may be called due before the stated maturity date, such as in the event of the director’s resignation or if certain financial covenants are breached.

Handling Loan Repayment

The repayment of directors’ loans is a process that must be managed with precision to maintain the financial equilibrium of the company and to comply with legal and tax regulations. The loan agreement should clearly state the terms of repayment to avoid any ambiguity that could lead to disputes or financial strain on the company. It is common for repayment terms to include provisions for lump-sum payments or regular installments, and these should be adhered to strictly to prevent the loan from becoming a point of contention or a financial liability.

In instances where a director is unable to fulfill the repayment terms, the company must consider the impact on its cash flow and the potential need for provisions for bad debts in its financial statements. This is particularly important if the loan is significant in relation to the company’s overall financial position. The company must also be mindful of the potential tax implications of a non-repayment or loan forgiveness, as these can be construed as income to the director and may attract additional tax charges for both the director and the company.

Self-Auditing Practices for Financial Integrity

Significant influence in financial reporting and governance, you may also be interested in..., new canadian cpa organization: structure, goals, and future plans, key hr compliance issues in today's workplace, identifying and preventing common management failures, integrating stakeholder value into corporate strategy.

Coronavirus COVID-19 Update: It's business as usual for us 🙂

How Do I Account for A Director’s Loan?

As the director of a limited company you can use a director’s loan to borrow money from (or lend money to) the business. We explain what a director’s loan is, how it works, and how to account for this in your company’s bookkeeping.

What are director’s loans?

A director’s loan is when you, as a company director, borrow money from your company that needs to be paid back. In other words, it’s a loan from your company that cannot be classified as legitimate expenses, dividends, or salary.

It works in reverse too. A director’s loan could be from yourself to your company, to help see it through cash flow struggles for example, or to invest in research and development.

What is a director’s loan account?

The director’s loan account (DLA) is used to keep track of what you have borrowed from, or lent to, your company. If a director is lending a company more than is being taken out, then the DLA is in credit. If a director borrows more, then the account shows a debit.

Shareholders and long-term creditors don’t look too favourably at DLAs which are consistently overdrawn for long periods of time. Limited companies exist as separate legal entities to their directors, so like any lending facility, avoid over-reliance! Aim to be either at zero or in credit as much as possible.  

Reduce errors and spend less time on bookkeeping

What sort of “loans” are we talking about?

Director’s loans can take many forms and might not always be a simple case of advancing cash into or out of your business. For example:

• If you’re due a salary according to the payroll, but don’t take it, then the unpaid amount may be credited to the Directors Loan Account (DLA)
• Any dividends which are due may also be credited to the DLA rather than paying them out (as long as you are both a director and a shareholder)
• Putting any outstanding expense claims to the DLA
• Putting business mileage against it
• You can credit or debit the DLA with money resulting from the sale of company assets to the director (or the other way round), as long as the amount due is outstanding and not paid immediately
• If you take more out of the company than is due for dividends, salary, or expense repayments, then debit the difference to the DLA
• Any unpaid interest related to the loan will also be put to the DLA

Also – and this is really important – if a company funds a director’s private expenditure, it’s possible to record the payment as a loan rather than as a business expense. This then avoids National Insurance charges and income tax that would otherwise be due on a “ benefit in kind ” if the company bears the expense permanently.

As a director, why might I decide to borrow from my company?

Director’s loans give access to additional money over and above your salary and/or dividends. They’re handy for covering emergencies or unexpected expenses but they do come with risks, and require time and effort to administer.

They should really be used on a one-off basis as an emergency source of personal funds, rather than as a regular income stream.  

What about transactions between myself and members of my family, friends or other associates?

If your company is a “close” company (ie. there are five or fewer shareholders), then you must record any transactions between friends, family, or other associates. This also applies if there’s a higher number of shareholders than five, but those individuals are also directors.

How do I show DLA transactions in my company’s accounts?

You must include any advances, loans, or credits made by a company to a director (and any associates) in the notes to the accounts. This should disclose the loan amount, along with the main conditions, interest rate, and any amounts to be repaid or written off.

Conversely, you don’t usually need to disclose loans given to the company by a director, but in the interests of transparency it’s a good idea to do it anyway.

The debtor (where the company is owed money) or creditor (where the director is owed money) will be displayed on the company’s balance sheet .  

Real-time accounting reports in a few clicks

What is the interest on a director’s loan?

The interest rate charged on a director’s loan is entirely up to the company. Just be aware that HMRC will view it as a benefit in kind if the interest payable is less than the official rate.

  This means you’ll need to pay tax on the difference between the official rate and the rate you’ve actually been paying. Class 1 National Insurance contributions will also be due at a rate of 13.8% of the loan’s entire value.

I’m considering a director’s loan. How much can I borrow?

Technically there’s no legal limit as to the amount you can borrow from your company. But! It’s extremely important that you consider very carefully what the company can realistically lend you, and how long it can manage without that money. Avoid creating potential cash flow problems for the future. If you use Pandle, the Cash Flow Forecasting feature and other reporting tools will help.  

Considerations and approval

If the director’s loan is more than £10,000 then it’s automatically considered a ‘benefit in kind’, and you’ll need to disclose it on your Self Assessment tax return. You’ll also need approval from each shareholder if the loan is over £10,000.

How soon must I repay a director’s loan?

You must repay your director’s loan within nine months and one day following your company’s year-end. If you don’t, you’re liable for a hefty fine.

  The good news is that you can claim this tax back once you repay the loan in full. Just be aware that reclaiming can be drawn out process, so really, it’s best to just pay up on time if you can.

I’ve heard it’s possible to take out a director’s loan ‘by accident’. What’s that all about?

This is in fact correct! It is the case that a director’s loan can be taken out ‘by accident’ simply by paying yourself an illegal dividend.

It’s not uncommon for directors to take as much of their income as possible as dividends for the purposes of tax efficiency . But dividends can only be paid out from profits, so if your company hasn’t actually made a profit then you can’t legally take a dividend.

The problem can come if you don’t pay close attention to the preparation and management of your accounts, meaning you inadvertently declare a profit that is actually a loss. You then take a dividend thinking your company is in profit. The dividend is therefore illegal and should then be considered as a director’s loan which is recorded in the DLA in the proper way.

It’s yet another reason why we really, really like accurate bookkeeping, and try to make it as achievable as possible.

I want to lend money to my company. How do I do this?

You might want to lend your own money to your company for any number of reasons, using your director’s loan account to account for the loan.

If you do decide to charge your company interest on the loan, the interest payments you receive are considered income, so you’ll need to include them on your Self Assessment tax return.

As far as the company is concerned, the interest it pays to you is a business expense, and will deduct 20% basic rate income tax at source. The company won’t need to pay Corporation Tax in respect of the loan.

Managing a director’s loan in your company’s accounts with Pandle

Your director’s loan is just like any other important financial business commitment – and you need to keep track of it. Pandle allows you to view and manage your director’s loan account any time, anywhere.

In Pandle your DLA works exactly like a bank account, but it shows how much you still owe your company (or what your company owes you). You can enter any business expenses you’ve incurred too. It’s simple, quick and means you can easily stay on top of things. Learn more about creating a Director’s Loan Account in Pandle   Find out more about our timesaving bookkeeping features , talk to one of the team using the Live Chat button on screen, or create your account to get started.

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible.

VAT Software (MTD)

Collaboration

Items (Stock Control)

Receipt Uploads

Live Chat Support

Who We Help

Self-Employed Software

Freelancer Accounting Software

Sole Trader Accounting Software

Charity & Non-Profit Accounting Software

Accountants

Software For Accountants

Support for Accountants

Support for your Clients

Brand Assets

Help Centre

Making Tax Digital

Pandle Partner Agreement

Pandle User Agreement

Privacy Policy

Pandle ® 2024

Director’s Loan Account and Dividends

29 January 2024

Operating an overdrawn DLA during the time leading up to insolvency can result in serious financial difficulty for directors on a personal basis.

Understanding the details of a director’s loan account is essential for proper financial management and compliance. As a director, you need to know the implications and risks of borrowing money from, or lending money to, your company. This article highlights what is a director’s loan account, how they work, and what to look out for.

What is a Director’s Loan account?

A Director’s Loan Account, or DLA, is an account that reports all transactions between the director and the company. Amounts due to the director from the company should be recorded in the company’s books as a creditor while the amounts due from the director to the company should be recorded as a debtor.

What is considered to be a director’s loan?

A loan to a director is any payment that cannot be categorised as salary, dividends or legitimate expenses. In other words, it is money that a director borrows from the company, and will eventually have to repay.

How is a company loan to a director approved?

For loans of more than £10,000, shareholder approval must be given beforehand. Often a director is also a controlling shareholder, so the approval is more a formality rather than a legal issue.

Does a benefit in kind arise on an overdrawn DLA?

If the loan is greater than £10,000, a benefit in kind will arise on the cash equivalent of the amount of interest that would be payable at the official rate.

A benefit in kind will not arise if the loan does not exceed £10,000 or the director is paying interest on the loan at the rate recommended by HMRC.  

Are there any other tax implications on an overdrawn DLA?

A director’s loan must be repaid within nine months and one day of the company’s year-end. Any unpaid balance at that time will be subject to a 32.5% corporation tax charge (known as a Section 455 tax charge).

Once the loan is fully repaid, the tax can be claimed back. However, this can be a lengthy process.

What are the consequences if the loan is not properly approved?

Potentially serious consequences can result if the proper approval process is not followed, particularly if the loan is for more than £10,000. Section 213 of the 2006 Companies Act advises that the loan may be considered ‘voidable’ or invalid.

Taking out a director’s loan ‘by accident’

It is possible to take out a director’s loan inadvertently, by paying yourself an illegal dividend.

A director may choose to take much of their income in dividends, as this is generally more tax efficient than a salary. However, dividends can only be paid out of profits, so if the business has got distributable reserves (usually arising from retained profits), then legally no dividends can be paid.

If management accounts are not prepared correctly, then a profit may be declared by mistake and illegal dividends be paid. This should then be considered a director’s loan, recorded in the DLA and repaid within the nine-month deadline.

Can I lend money to my company?

It is possible for a director to lending to the company (e.g. to fund its ongoing activities or buy assets) but only a temporary basis.

If a director decides to charge interest, then any interest that the company pays is considered income and must be recorded on their self-assessment tax return.

The company treats the interest paid as a business expense and must also deduct income tax at source (at the basic rate of 20 per cent). However, the company will pay no corporation tax on the loan.

What are the consequences on the overdrawn DLA if the company goes into liquidation?

Operating an overdrawn DLA during the time leading up to insolvency, and when the company enters liquidation, can result in serious financial difficulty for directors on a personal basis. If it is later found that a director took a loan from the company that couldn’t be financially supported at the time, the repercussions can be severe.

The liquidator’s overall responsibility is to the company’s creditors. They have a duty to realise the business’ assets and collect all debts for the benefit of creditors. Although there is a legal separation between you and the company, directors’ loans cannot simply be written off when the business experiences financial difficulty. They will seek repayment of the loan and pursue the director personally through the courts which can lead to bankruptcy.

Under these circumstances, more directors are likely to face financial recovery action and face scrutiny by the Insolvency Service. Whenever a company enters into liquidation, an investigation commences to understand the reasons for the company’s decline. If one of those reasons is an overdrawn DLA, you could be held partly responsible for the company’s financial situation.

What are the consequences on illegal Dividends if the company goes into liquidation?

Dividends are only payable from profits and consideration of the company’s future profitability. Yet if directors pay dividends as insolvency approaches and even when insolvent, liquidators can, and do, seek to reclaim such dividends from the directors personally, because such dividends are illegal. Financial recovery action is part of a liquidator’s responsibility.

If the profits are not there to allow for the dividend, then any such dividend will be illegal and will be investigated at liquidation.

Are you able to write off the DLA balance if the company goes into liquidation?

Unfortunately, the debt you owe to your company cannot be written off. However, the liquidator will take all steps necessary to recover the money.

Director’s loan checklist

Here is a short summary of things to remember if you are considering borrowing money from your company or lending to it:

• Take out director’s loans only when absolutely necessary (i.e. explore all other options first).
• Repay your director’s loan within nine months and one day of the company year-end.
• Aim to borrow less than £10,000.
• If you borrow £10,000 or more, you must report it on your self-assessment tax return and the company must treat it as a benefit in kind.
• Wait at least 30 days between taking out different director’s loans
• If you lend to your company, ensure that both you and the company use the correct tax treatment.
• Do not allow your DLA to be overdrawn for extended periods.
• Be certain that your company has distributable reserves (retained profits) before declaring dividends.
• It is important to be fully aware of the balance on DLA, and to take the correct action if it becomes overdrawn. Understanding your responsibilities in this respect can safeguard you from personal liability should the company decline to the point of liquidation.

We always recommend taking independent professional advice. Get in touch with your accountant for more tailored support.

The information available on this page is of a general nature and is not intended to provide specific advice to any individuals or entities. We work hard to ensure this information is accurate at the time of publishing, although there is no guarantee that such information is accurate at the time you read this. We recommend individuals and companies seek professional advice on their circumstances and matters.

Debt Options for Founders

25 June 2024

Struggling to raise capital? Need an influx of cash in your business?

Advice : Fundraising, Leadership and Tech

Top 10 Loan Options for Founders

11 June 2024

Here is a list of 10 loan options for Founders.

Advice : Fundraising, Leadership, Strategy, Tech and Trends

Should ChatGPT be used for grant applications?

10 June 2024

The potential benefits and drawbacks of using this increasingly powerful tool.

Advice : Fundraising, Leadership, Tech and Trends

Sign up for I am a Founder News

Join our community of 4,000 + Founders, Entrepreneurs & Advisors. Refreshingly simple financial insights to help your business soar.

By submitting this form I give permission for Finerva to contact me. Privacy policy.

US: +16502784421

UK: +442071833436

[email protected]

Understanding – And Using – a Director’s Loan Account

• Pearl Lemon Team
• June 19, 2021

Table of Contents

Understanding – and using – a director’s loan account .

If you own a business, you’ve probably come across the term “directors loan account.” Directors loan accounts (DLA) are one of the many tax provisions that you should be familiar with when you start a business of your own. That’s especially true of DLAs, as, if done right, they can offer you personally some significant financial benefits.

What is a Directors Loan Account?

A director’s loan account is not a real bank account, it exists only in your accounting records to keep track of the money flowing between you and the limited company. A directors loan account requires you to be a director of a company, as the name implies.

When you form a limited company, unlike when you operate as a sole trader , the company is treated as a separate legal entity, and the money in the company does not legally belong to you. You can withdraw this money in a variety of ways, and the director’s loan account keeps track of who owes what.

You are borrowing from the company via the DLA when you take money out of the company that is not a loan repayment, expense repayment, salary, or dividend. Personal spending from the business bank account, cash withdrawals for personal use, or money transfers to your personal bank account are examples of this.

Putting Money Into Your Business

The DLA is also used to keep track of any money you lend to your company. In addition, any money you spend on behalf of the company (business expenses) is recorded in the DLA as owing to you. The previous credit entry in the DLA will be cancelled once the company makes payment for the expenses.

What To Keep In Mind About Directors Loan Accounts and Taking Money Out of Your Business

Too much becomes a benefit in kind.

If your DLA account is overdrawn by more than £10,000, it’s considered a benefit in kind because you’re getting a loan with no interest. This must be declared on a p11d prepared by the company, and you must pay income tax on this benefit in kind on your personal tax return. To avoid this, you could pay interest on the money you have borrowed, in which case the loan is no longer a benefit in kind.

You May Owe the Company Money at Years’ End

Dividends are paid from reserves as a return on investment, and they are paid after corporation tax. A dividend declaration can be used to settle a directors loan account that is still outstanding at the end of the year, but you must ensure that there is enough profit left over after taxes to settle the account with dividends. If you have an overdrawn director’s loan account and owe money, you must report it on your corporation tax return, and you may have to pay tax on it.

There is no tax to pay if you repay the loan within 9 months and 1 day of the end of your accounting year; if this is not possible, the company must pay 32.5 percent s455 tax on the loan, which is recoverable after the loan is repaid.

And by the way, The director’s loan includes what HMRC classifies as associates, which includes husbands, wives, civil partners, relatives, business partners, and investors.

Why Would I Need a Directors Loan Account?

There are a variety of reasons why you might need a loan from your company, such as unexpected repair costs or even paying for a personal holiday trip.

The most important thing to remember is that the loan was not subject to personal or corporate tax, and HMRC does demand what is due!

What happens if I owe money to my company?

If you owe your company more than £10,000 (interest-free) at any time, the loan is considered a benefit in kind, and you’ll need to report it on a P11D because it’ll be subject to both personal and corporate tax. On top of that, you’ll have to pay Class 1A National Insurance on the entire amount.

What if my business owes me money?

Your company does not pay Corporation Tax on money you personally lend it, and you can withdraw the entire amount at any time, regardless of whether the company is profitable or not.

If you charge interest on the loan, it will be considered a business expense for the firm and personal income for you. There are specific rules governing the timing of repayments and any interest charged or received, which can result in a tax benefit for both the company and the director, with careful tax planning.

How Do I Set Up a DLA?

Setting up – and then properly paying back – a DLA is something that should be left to an accountant, to avoid tax hassles for you or your company. Don’t have one yet? For more information on how a DLA could benefit your company, contact us here.

How does a director’s loan account work?

A director’s loan account or DLA is essentially a way to virtually monitor all the funds you have either loaned to or borrowed from your organisation . If the account has credit on its account, the organisation borrows more funds than it’s lending.

What type of account is a directors loan account?

It’s just a record of every transaction that has occurred between the director/s and the organisation.

Is a director’s loan a benefit in kind?

Yes, but only if it meets specific qualifications , such as not paying interest on the loan, if the interest you’re paying is less than the average beneficial loan rate established by HMRC, and if it’s £10,000 or more.

Is a director’s loan an asset or liability?

The director’s loan is considered an asset. Want more detailed information, contact us here !

Do you pay interest on a director’s loan?

Yes, however, it is considered an expense on the company’s accounts. This decreases the amount that the Corporation Tax can charge.

Company Address:

Pearl Lemon Accountants 38 Cursitor St, Chancery Ln, London, United Kingdom WC2A 1EN

Contact Us:

UK: +44 20 8163 2608

Pearl Lemon Accountants is a part of the wider Pearl Lemon Group. This means we have additional resources that other companies simply can’t call upon. We are a multinational business with offices in Asia, Africa, North America, Europe.

We work with clients that are sole traders as well as multinational corporations and 7-figure businesses.

Recent Posts

Top 10 Best Bookkeeping and Accounting Services in the USA

10 Best Tax Accountant Companies in the USA

10 Best Tax Accountant Companies in the UK

Let’s talk accountancy..

Get in touch today, so we can discuss your accountancy needs, your business, your hopes for the future and just how Pearl Lemon Accountants can help you.

We're Hiring!

© All Rights Reserved | Company Number: 10411490 |  VAT Number: 252 7124 23

Sitemap | Privacy Policy | Term of Services

Director’s Loan Account

Tom Malley FCCA

What is a Director's Loan Account?

Overdrawn directors loan, the lenders point of view, quasi salary, quasi dividend, director's loan account and tax, director loan account takeaways.

There are three common misconceptions to put right before we dive in. Understanding these points will make learning about Director loan accounts (DLA) easier.

• A company Director does not receive dividends. Shareholders receive dividends. Individuals can, of course, be both but, do not assume that is automatically the case.
• Dividends are a distribution of profits. They can normally only be recognised if there are distributable reserves.
• The accounting entry recording a dividend does not necessarily have to be a cash event in itself.

The purpose of a Director's loan account (DLA) is to act as a record of transactions between the Director and company.

The balances of each director account should be disclosed at the accounting period end as they are material by nature, regardless of value.

DLAs can only be used by companies that have Directors. A sole trader or any form of a partnership will not have DLA balances in their annual accounts. Only a private limited company (Ltd) or a publically limited company (Plc) will do so.

It's worth noting there are companies limited by guarantee rather than share capital. Charities are examples of a legal entity limited by guarantee rather than share capital but they are outside of the scope of this guide.

It isn't best practice to do so, but, in many instances, Directors will have personal expenses paid through the company bank account or a company credit card. The DLA is the accounting record for such transactions.

The Director can also incur business expenses out of their personal funds. If expense repayment is not made by the company, the value will be included in the DLA, offsetting or partially offsetting any liability.

Salary payments (via payroll) and dividends do not get recorded in the DLA.

As a Director you will be in one of the following three positions:

• The business owes you money
• You owe the business money
• The balance is zero because there have been no transactions, or the value of inflows is equal to the value of outflows.

If the Director has an outstanding balance to the business, the business recognises an asset. As an individual without any protection from the veil of incorporation, you owe the company money. You will also potentially owe any secured and unsecured creditors who have a claim over the legal entity.

From a business debt perspective, there are two things to consider with overdrawn loan accounts:

• The perception the lender will have regarding the overdrawn loan of the Director.
• The impact recovery could have on the overdrawn Director as an individual.

They will see you as having skin-in-the-game because the lender has the option to pursue you as an individual if there is financial difficulty and the loan defaults. Even if you don't have a personal guarantee , you will still be a debtor to the company and be on the hook to the lender and potentially other company creditors for the unpaid balance.

There are simple mechanisms that can reverse or zero the DLA balance. The Director should be aware that all are obvious. If they are relying on it to get off the hook, then they are in a pretty desperate place and unlikely to succeed.

The lender may include loan covenants that restrict the Director's ability to increase the overdrawn loan balance. They may also limit mechanisms for DLA reduction.

With good planning and proactive management, DLA issues can be avoided.

The lender may be interested in the substance of transactions in the director loan account.

Are there cash withdrawals similar in nature to a salary/wage?

If there is a recurring amount paid each month, it opens the question over a quasi salary and tax implications for both the Director and business. There will also potentially be a tax charge around the use of subcontractors/employees.

If the lender treats the payments as a quasi salary it will negatively impact your application. The lender may well take the below point of view:

• The payments are balance-sheet-to-balance-sheet transactions, meaning there has been no recorded impact on the P/L.
• If the substance of the transactions is a salary, profit will be overstated by the gross expense. There may also be issues with income tax, national insurance, and corporation tax (indirectly) as the payments have not been via the company payroll and not included in the P/L.
• Remember the gross expense includes class 1A national insurance contributions, employers' pension contributions, and the employee's taxes.

The values involved and the impact their representation has on the financial statements is what's important here.

While serving on the credit committee of a non-bank business lender, I refused several businesses funding opportunities because of scenarios like the above.

The lender may test the assumption that the transactions are a quasi dividend or an illegal dividend.

From the lender's perspective, the risk is that business debt will be used to support the owners' lifestyle rather than for a business reason. Of course, the owner would also need to be a Director for the balance to appear in a Director's loan account.

If the business is:

• Cash generative enough to support the payments
• Has sufficient security in place
• It appears the loan can be paid within the term and
• The owner has made clear the intention is to make such payments

The lender may well be happy to agree to fund. Presented honestly and openly this scenario can make for a good quality loan.

The scenario a Lender will not like is one in which:

• There is a history of spare/excess cash being taken out of the business, leaving little or no cash reserves.
• A lack of or reducing loan security.
• A retained loss- as a dividend can only be from retained profit.
• Signs the business is failing- remember poor cash flow can be an indication this is the case.

In this situation, the lender may refuse your application. From their perspective, it will look like a drowning man grasping at a straw. No Lender wants to be the last firm lending to a business.

This section intends to highlight areas for consideration. It does not amount to tax advice or a guide on tax rules. You should seek professional advice from a tax specialist if you have an issue or concern with any of the topics raised.

• Tax avoidance
• Class 1 National insurance underpayment
• Corporation tax penalty
• Misuse of a company asset
• Income tax implications over correctly reporting personal income
• Whether there should be tax payable on director's loans
• Correct use of the official rate
• Whether the balance is an interest-free loan or not
• Classification and reporting of taxable benefits
• Reporting of DLAs (see S455)
• Reporting issues for the Directors' personal tax return
• Even legal action

DLA transactions are material by nature regardless of the value. For this reason, they will always attract the attention of Lenders and Auditors.

Directors are also always considered related parties, so any transactions must be disclosed and should be at arms-length.

• Community Support
• Business Advice

Sage Accounting UKI

• Ask a question
• State Verified Answer
• Replies 4 replies
• Subscribers 28 subscribers
• Views 4724 views
• Users 0 members are here

How to enter a Director's Loan from a company to a Director?

Hi, I am trying to find a way to enter money taken out of the business as a loan from the company to the Director, and I'm not sure what ledgers to set up. I've found some info on Director's Loan accounts, but these seem to deal with money lent TO the company by the Director not the other way around, and suggest the Director's loan account should be a liability account? If the money is owed to the company by the Director isn't this an asset rather than a liability?

Any help would be appreciated!

Hi Kathryn,

You can still use the Director’s loan 2300 Ledger Account to record a loan that has been paid to a director. However, if you want to use a different Ledger Account you can. You should contact your accountant for advice if you're unsure which nominal code(s) to use, as this ultimately affects your accounts.

With regards to the posting you need to make, to record the loan to your director, you can record the payment of the loan an a payment in Banking > click the required bank account > New Entry > Purchase/Payment > Other Payment.

You can then record the receipts of the loan in Banking > click the required bank account > New Entry > Sale/Receipt > Other Receipt.

If this has answered your question, please click on the ‘This helped me’ link below.

• Vote Up 0 Vote Down
• Sign in to reply
• Verify Answer
• Reject Answer

Yes the payment you make will show as a debit and liability on your accounts. They Repayments will credit your accounts and reduce the liability until it has cleared.

• © Sage Group plc 2024
• Community guidelines
• General data protection regulation

*Community Hub is the new name for Sage City

What is a Director’s Loan Account & How Does it Work?

A director’s loan account (DLA) allows directors, or their family members, to take money out of their company. To qualify as a “director’s loan”, this money must not be a salary, a dividend, or an expense repayment. Also, it must not be money you’ve previously paid into or loaned to the company.

How Does A Director’s Loan Account Work?

As a director, you must keep detailed records of any money you borrow from or pay into the company. A DLA is a record of all the cash withdrawals you’ve made from the company, along with all personal expenses you’ve paid for with your company’s money.

By “personal expense”, we mean any expense you did not incur exclusively and wholly for business purposes. You must record and, ultimately, pay back any company money you use for personal expenses.

At the same time, your company’s accounts must clearly record any money you withdraw and pay back.

With a DLA, by the end of your company’s financial year, any money you owe to the company will be shown as an asset in the balance sheet. But any money the company owes you will be shown as a liability.

Learn more about expenses you can claim as a company director .

You Must Repay Director’s Loans

You should consider any money you borrow from your company to still belong to your company. This means you must pay it all back, even if you become insolvent.

If sufficient funds are available, and if you’re a shareholder, you could offset your DLA through declaring it as a dividend at the end of the company’s financial year. But in all other cases, you must repay your director’s loan.

Director’s Loans Over £10,000

If you’re not yourself a shareholder, your company’s shareholders must give their explicit approval for any director’s loan of £10,000 or more. If you do not get this consent, taking your loan may be considered a misfeasance, or as theft.

Do You Pay Interest on Director’s Loans?

Director’s loans may be subject to interest. You’re obliged to pay any interest on your loan that may be due. Also, if you charge interest on any loan you make to your company, you must declare this interest as part of your income.

Do You Have to Pay Tax on Director’s Loans?

You may also have to pay tax on your DLA. And if you’re a shareholder as well as a director, your company may have to pay tax too.

Your tax responsibilities, and your company’s tax responsibilities, will vary depending on whether your DLA is overdrawn (in which case you’ll owe the company money), or in credit (in which case the company will owe you).

Any director’s loan you take is taxable if it is not repaid within the current tax year. You can repay it, or part of it. In the new tax year you can then take the loan back out again.

Read a full guide to the tax implications of DLAs on the government’s website .

What Happens to Director’s Loans if Your Company’s Liquidated?

If your company enters liquidation proceedings, the liquidator may wish to pay the company’s creditors through collecting any money you owe the company. To achieve this, they may take legal action against you. And if you cannot afford to repay your loan, you may face personal bankruptcy.

Specialist Cover for Company Directors

Directors and Officers insurance can cover damages and claim expenses associated with claims made against you as a company director for alleged wrongful acts.

Read more about how Directors and Officers insurance works , and what it covers.

If you have any questions or would like to discuss your options, please contact our Tapoly team at [email protected], call our helpline on +44(0)207 846 0108 or use the chat box on our website.

• Advance Search

Navigating Directors's Loans: Key Information and Insights

31 Jan 2023

As a company director, what do you do when you need money as soon as possible but are struggling to get a loan from the bank? While the first thing you might consider getting a dividend from your company, this may not be possible if your company is not profitable. In those circumstances, you might consider a director’s loan , which is money taken out from your company’s accounts that are not used for salary, dividends, or expenses. If you want to take out a director’s loan, you will need to understand the risks and common legal issues arising from them.  

What is a director’s loan?

‘Director’s loan’ refers to a loan between a director of a company and the company. This loan arrangement can take two forms depending on whether the director or company is the party lending the money.

Firstly, a director’s loan can refer to an arrangement whereby a company lends money to one of its directors. In this scenario, the director becomes a debtor (somebody who owes money) of the company and would therefore be obligated to pay back the money borrowed from the company.

For it to be considered a director’s loan, the money conveyed from the company to the director cannot be classifiable as a salary, dividend, or another legitimate expense repayment. Furthermore, the money conveyed should not be classifiable as the repayment of monies previously lent to the company by the director.  

Secondly, a director’s loan can also refer to an arrangement where a d irector lends money to the company. In this scenario, the director becomes a creditor (somebody who is owed money) of the company. The company is the debtor and is obligated to repay the money borrowed from the director.

Secondly, a director’s loan can also refer to an arrangement where a d irector lends money to the company. In this scenario, the director becomes a creditor (somebody who is owed money) of the company. The company, a separate legal entity, is the debtor and is obligated to repay the loan money borrowed to the director (e.g. from company profits). 

When and why might I take out a director’s loan?

Why you might take out a director’s loan depends on who the lender is – the director or company.

Loans from a director to a company are usually done to help with start-up costs or to help the company deal with cash-flow problems to ensure that company activities can go on smoothly without incurring a lengthy process. 

Loans from a company to a director are usually made to cover large but short-term expenses. They tend to be unexpected and consist of one-off expenses. An example of this is when there is a sudden need by a director to pay for water restoration services.

Director’s loans, where the company is the lender, give the director access to more money than otherwise obtainable via salary or dividends. Directors’ loans however are not used routinely by directors and should only be used in emergencies where personal funds are insufficient.

Legal issues to consider when making/taking a director’s loan:

Every director and company should familiarize themselves with potential issues, obligations, and legal processes that surface when making/taking a director’s loan.

1. Compliance with director’s duties  

Directors owe statutory duties to their companies. Directors must therefore make sure that they do not act in breach of these duties when taking/making a director’s loan. The duties must be prioritised during every loan transaction.

Crucially, if the company is borrowing under a director’s loan, the directors of the borrowing company must ensure that the loan will promote the success of the company and not any other reason.

If a company is borrowing money under a director’s loan from one of its directors, this would constitute a conflict of interest for the director. To ensure compliance with director duties, the director must disclose this interest to the other directors before entering into the transaction. This can be done through a simple letter to the board of directors of the company.

We have created free template letters of disclosure for notifying the board of directors of a conflict of interest for you to use. You can find it here: https://docpro.com/doc164/disclosure-of-interest-director-s-loan .

2. Due Diligence

Like other loans, for director’s loans, the lender (be that the director or company) might conduct due diligence on the other party.

Due diligence, in the context of a loan, is a process where a lender evaluates whether the borrower will be able to repay the loan following an agreed schedule. Due diligence often involves an analysis of the financial position and assets of the borrower.

In the case of director’s loans, whether due diligence is conducted with any vigour depends on the company at hand.

If the borrower is the sole director and the shareholder of the company, due diligence will likely be minimal, if existent at all.

If the borrower is one of many directors in a large organisation, heavy due diligence may be required.

In any case, if the lender is a director and elects to conduct due diligence, the director should consider whether the borrower has the authority to borrow.

The activities of every company are restricted by its articles of association. The articles of association of a company may specify something to the effect that the company cannot borrow sums over a particular amount or cannot over a particular amount unless certain approvals are obtained.

In such a case, the director (the lender) should make sure they get proof from the company that approval has been obtained; otherwise, the director runs the risk that the loan is not binding on the company and will struggle for repayment. 

3. Obtaining security for the loan  

Whether the lender needs security for the loan is a business decision to be taken by the lender himself.

If the director is the lender under a director’s loan and is to obtain security over assets of the company, this may constitute a substantial property transaction.

The director, to ensure his/her security interest is actualised, should obtain shareholder approval for the transaction.

4. A loan agreement should be recorded in writing

The director’s loan should be recorded in writing and then be signed and executed by both parties. The actual loan facility should be signed by the company and director.

Despite this being a seemingly obvious step, small companies often fail to ensure that their agreements are in writing and signed by both parties.

We created a free template director's loan agreement you can use for this purpose here . 

What is a director’s loan account?

A director’s loan account is an account included in the balance sheet of a company. A director’s loan account is a record of all money lent by the director to the company and all money lent by the company to the director. Put simply, it is a record of the transactions between the director and the company.

At any given moment, the director’s loan account can either be ‘in-credit’, ‘overdrawn’, or 'zero'.

A director’s loan account is ‘in-credit’ if the company is borrowing more from the director than the director is borrowing from the company.

It is ‘overdrawn’ when the director is borrowing more from the company than the director is lending to the company.

It is zero when neither party owes the other any sum of money. This might be because both parties have borrowed and repaid identical amounts to each other.

At the end of the company’s financial year, the director will either owe the company money, the company will owe the director money, or nothing will be owed by either party. Accordingly, it will be shown as an asset or liability on the balance sheet of the company.

What should a director’s loan account include?

Items that should be included or should contribute to a director’s loan account include:

Cash withdrawals made from the company as a director

Personal expenses paid for using the company money

Business expenses are those that are incurred by the director under fulfilling their duties as a director. Other expenses will be considered personal expenses.

It is important to make sure that you have evidence proving whether the expense is a business or personal one. This is especially important when the inland revenue government department inspects your account.

How much can be borrowed in a director’s loan?

There is no cap on the amount that can be borrowed through a director’s loan by either the company or the director. This means a director/company can borrow as much as they want.

However, just because it is possible to borrow a lot does not mean that should happen. The director should consider the financial position of the company and should keep in mind the duties they owe as directors to their companies.

What is the interest in a director’s loan?

It is up to the director and the company to determine what interest rate it charges on a director’s loan.

When should a director repay a loan from a company?

In many jurisdictions, tax penalties apply, incentivising directors to repay their loans by a certain date.

Different jurisdictions have varying rules on the taxation of director’s loans. We are unable to cover all the different regimes in different common law jurisdictions, so we advise you to check what the rules are on your own.

To give you an example of a ‘tax penalty’ that incentivises a director to repay their loans by a certain date, we will focus on England & Wales laws.

In England & Wales, whether tax is owed depends on when the director repays the loan to the company. If the director repays the loan within the same financial year as he takes out the loan, no tax is owed. If the director settles the loan within nine months and one day of the company’s financial year-end, still, there is no tax.

If the director has paid part of the loan within nine months and one day of the company’s financial year-end, the company owes tax on the outstanding balance remaining. This amount will be taxed at a rate of 32.5%. This will be in addition to any corporate tax the company is liable for.

If the director settles the loan after nine months and one day of the company’s financial year-end, a tax of 32.5% will be payable on the loan amount.

The sum of tax paid at 32.5% can be reclaimed, but only after the full loan has been repaid to the company. Furthermore, it can only be reclaimed 9 months and 1 day after the end of the financial year in which you repaid all the loans to the company. To illustrate these rules, take the following example:

Jack borrows £20,000 on 12 th June 2020 and his company’s financial year-end is 31 st September 2020. Jack will have until 31 st July 2021 to repay the loan. If Jack does not pay by 31 st July 2021, the company has to pay 32.5% of £20,000 as a tax which is £6500.

Jack makes full repayment on 21 st September 2021. He will only be able to reclaim the tax – the £6500 – on 22 nd June 2021.

To avoid this hefty tax, you should repay your loan within 9 months and 1 day after the end of the financial year of your company.

Please note that this is a general summary of the position under common law and does not constitute legal advice. As the laws of each jurisdiction may be different, you may wish to consult your lawyer.

Prasanth Ramaswamy

Prasanth ramaswamy is a legal contributor to docpro. prasanth is a practising solicitor at a leading international law firm specializing in corporate and finance law. if you would like to become a blog contributor to docpro, please click the link below:, docpro legal contributor, director's loan, director's loans, directors loan, directors loans, directors' loan, shareholder loan, director's loan template, director's loan template word, director's loan example, director's loan sample, what is a director's loan, what to know about a director's loan, tax on director's loan, director's loan approval, you are master and commander of thousands of documents, join one of the largest online documents database created by legal professionals, with easy to use tools for customization and jurisdiction selection engine.

Not the right document?

Don’t worry, we have thousands of documents for you to choose from:

• Running a business

What is a director's loan & how do they work?

What is a director's loan & how do you use them? What are the tax implications & what account should they be paid into? Director's Loans Explained.

Should I borrow money from my company by taking out a director’s loan? Or should I loan money to my company?

Both of these questions may arise from time to time when you are a company director .

To answer them, you’ll need to understand what is mean by a director’s loan, how your director’s loan account works, and the responsibilities and risks involved when borrowing or lending money in this way.

What is a director’s loan?

A director’s loan is money you take from your company's accounts that cannot be classed as salary, dividends or legitimate expenses.

To put it another way, it is money that you as director borrow from your company, and will eventually have to repay.

Another kind of director’s loan is when a director lends money to the company, for example to help with start-up costs or to see it through cash flow difficulties. As a result the director becomes one of the company’s creditors.

When and why might I borrow from my company?

Taking out a director’s loan can give you access to more money that you are currently receiving via salary and/or dividends.

Director’s loans are typically used to cover short-term or one-off expenses, such as unexpected bills.

However, they are admin-heavy and come with risks (such as the potential for heavy tax penalties), so they shouldn’t be used routinely, but rather kept in reserve as an emergency source of personal funds.

What is the director’s loan account?

The director’s loan account (DLA) is where you keep track of all the money you either borrow from your company, or lend to it.

If the company is borrowing more money from its director(s) than it is lending to it, then the account is in credit.

However, if the director(s) borrow more, then the DLA is said to be overdrawn.

Be aware that shareholders (and perhaps other creditors) may become concerned if your DLA is overdrawn for any length of time.

You should aim to ensure that most of the time it is either in credit or at least at zero.

Find an accountant for your small business who can help with putting together a director’s loan account.

What is the interest on a director’s loan?

It is up to your company what interest rate it charges on a director’s loan.

However, if the interest charged is below the official rate then the discount granted to the director may also be treated as a ‘benefit in kind’ by HMRC .

This means that you as director may be taxed on the difference between the official rate and the rate you’re actually paying.

Class 1 National Insurance (NI) contributions will also be payable at a rate of 13.8 per cent on the full value of the loan.

The official rate of interest changes over time, in response to base rate changes. In the year 2018/19 it is 2.5 per cent.

How much can I borrow in a director’s loan?

There is no legal limit to how much you can borrow from your company.

However, you should consider very carefully how much the company can afford to lend you, and how long it can manage without this money.

Otherwise the director’s loan may result in cash flow problems for your company.

Also bear in mind that any loan of £10,000 or more will automatically be treated as a ‘benefit in kind’ (see above) and must be reported on your self-assessment tax return .

In addition you may have to pay tax on the loan at the official rate of interest. For loans of £10,000 or more you should seek the approval of all the shareholders.

How soon must I repay a director’s loan?

A director’s loan must be repaid within nine months and one day of the company’s year-end, or you will face a heavy tax penalty.

Any unpaid balance at that time will be subject to a 32.5 per cent corporation tax charge (known as S455 tax).

Fortunately, you can claim this tax back once the loan is fully repaid – however, this can be a lengthy process.

Claiming back corporation tax on an overdue director’s loan

If you have taken longer than nine months and one day to repay your director’s loan and have been charged corporation tax on the unpaid amount, you can claim this tax back nine months after the end of the accounting period in which you cleared the debt.

This is a long time to wait and the process can be onerous, so it’s best to ensure you don’t end up in this position.

One possible workaround is to put off paying your company’s corporation tax until your director’s loan is repaid.

Your corporation tax payment deadline is nine months after your financial year end, which can give you extra time to repay the loan.

Can I repay a director’s loan and then take out another one?

You have to wait a minimum of 30 days between repaying one loan and taking out another.

Some directors try to avoid the corporation tax penalties of late repayment by paying off one loan just before the nine-month deadline, only to take out a new one.

HMRC calls this practice ‘bed and breakfasting’ and considers it to be tax avoidance. Note that even sticking to the ’30-day rule’ is not guaranteed to satisfy HMRC that you are not trying to avoid tax.

This is why you shouldn’t make a habit of relying on director’s loans for extra cash.

Taking out a director’s loan ‘by accident’

It is even possible to take out a director’s loan inadvertently, by paying yourself an illegal dividend.

As director you may choose to take much of your income in dividends , as this is generally more tax efficient than a salary.

However, dividends can only be paid out of profits, so if your business has not made a profit then legally no dividends can be paid.

If you don’t take enough care in preparing your management accounts , then you may declare a profit by mistake and pay yourself a dividend.

This illegal dividend should then be considered to be a director’s loan, and recorded in the DLA. You should then make sure to repay it within the nine-month deadline.

Learn more:   What is the tax rate on dividend income?  

Can I lend money to my company?

It’s possible to make a director’s loan the other way round, by lending to your company.

This may be an option for you if you want to invest money into your company (e.g. to fund its ongoing activities and/or buy assets) but only a temporary basis.

If you decided to charge interest, then any interest that the company pays you is considered income and must be recorded on your self-assessment tax return.

The company treats the interest paid to you as a business expense, and must also deduct income tax at source (at the basic rate of 20 per cent). However the company will pay no corporation tax on the loan.

Director’s loan checklist

Here is a short summary of things to remember if you are considering borrowing money from your company or lending to it.

Take out director’s loans only when absolutely necessary (i.e. explore all other options first)

Repay your director’s loan within nine months and one day of the company year-end if possible

Aim to borrow less than £10,000

If you borrow £10,000 or more, you must report it on your self-assessment tax return and the company must treat it as a benefit in kind

Wait at least 30 days between taking out different director’s loans

If you lend to your company, ensure that both you and the company use the correct tax treatment

Do not allow your DLA to be overdrawn for extended periods

Be certain that your company has made a profit before declaring dividends

As you can see, director’s loans are a tricky area, so should not be used lightly or routinely.

Strict bookkeeping and accounting is also extremely important when dealing with director’s loans, so make sure you are using a good accountant .

The global body for professional accountants

• Search jobs
• Find an accountant
• Technical activities
• Help & support

Can't find your location/region listed? Please visit our global website instead

• Middle East
• Cayman Islands
• Trinidad & Tobago
• Virgin Islands (British)
• United Kingdom
• Czech Republic
• United Arab Emirates
• Saudi Arabia
• State of Palestine
• Syrian Arab Republic
• South Africa
• Africa (other)
• Hong Kong SAR of China
• New Zealand
• Our qualifications
• Getting started
• Your career
• Apply to become an ACCA student
• Why choose to study ACCA?
• ACCA accountancy qualifications
• Getting started with ACCA
• ACCA Learning
• Register your interest in ACCA
• Learn why you should hire ACCA members
• Why train your staff with ACCA?
• Recruit finance staff
• Train and develop finance talent
• Approved Employer programme
• Employer support
• Resources to help your organisation stay one step ahead
• Support for Approved Learning Partners
• Becoming an ACCA Approved Learning Partner
• Tutor support
• Computer-Based Exam (CBE) centres
• Content providers
• Registered Learning Partner
• Exemption accreditation
• University partnerships
• Find tuition
• Virtual classroom support for learning partners
• Find CPD resources
• Your membership
• Member networks
• AB magazine
• Sectors and industries
• Regulation and standards
• Advocacy and mentoring
• Council, elections and AGM
• Tuition and study options
• Study support resources
• Practical experience
• Our ethics modules
• Student Accountant
• Regulation and standards for students
• Your 2024 subscription
• Completing your EPSM
• Completing your PER
• Apply for membership
• Skills webinars
• Finding a great supervisor
• Choosing the right objectives for you
• Regularly recording your PER
• The next phase of your journey
• Your future once qualified
• Mentoring and networks
• Advance e-magazine
• Affiliate video support
• About policy and insights at ACCA
• Meet the team
• Global economics
• Professional accountants - the future
• Supporting the global profession
• Download the insights app

Can't find your location listed? Please visit our global website instead

Directors’ loan account – valid entries are vital

• Technical activities and advice
• Directors’ loan account – valid entries are vital

Failing to record directors’ loans can prove costly

Case summary

Further information.

Directors’ loan account (DLA) adjustments are a constant theme in the accounts of SMEs. Practitioners are often faced with the task of analysing SME transactions and explaining which credits should/should not go to the DLA.

Often the directors/shareholders adopt an informal approach and are rather keen to process entries which benefit them but often do not understand the implications. The directors of SMEs, mainly due to the size of the business, necessarily tend to concentrate on day to day activities and pay less attention to accounting and tax matters. 

This often results in HMRC and the client having conflicting views. An example of their interest in this subject is the recent first tier tribunal victory for HMRC where an appeal against PAYE/NIC was dismissed. This is a case which demonstrates that HMRC is looking at the entries in DLAs and that it can/will assess tax when it sees it as applicable.

The appellant company is an SME which their own accountant described at the tribunal as ‘the appellant is a small business and is conducted very informally between the shareholder directors’. (Does this ring any bells for members?)

One of the directors had loaned the company a substantial amount of money a few years ago. This was on an informal basis and so it was not clear whether there was a loan agreement or if the loan was interest bearing.

The tribunal heard that it had been ‘agreed’ that on 30 September annually his loan account was to be credited with an annual salary of £16,000. By 30 September 2013 eight such sums had been so credited. HMRC carried out an employer’s record inspection and was told that: 

• the director was paid £16,000 at the end of each trading year but that the amount was credited to the loan account
• no payments had in fact been made to him and accordingly, it was the appellant’s understanding that no PAYE or NICs were due by in respect of the sums credited.

The tribunal heard that on 2 January 2014 the appellant’s representative confirmed that the sums credited to the DLA had been voted upon but as they had not been paid it was proposed that in the 2013 corporation tax accounts all sums credited (£128,000) would be reversed by way of prior year adjustment (PYA). That adjustment was included in the 2013 accounts and provided to HMRC on 30 June 2014.

The appellant also told the tribunal that the entries were made ‘for good housekeeping reasons, and were accrued by way of an ‘aide memoir’. It was claimed that the PYA undertaken in the 2013 annual accounts was simply to reverse out the accrual which was never really intended.

HMRC took the view that the annual sums had been accrued and any attempt to reverse the accrual by PYA or otherwise was ineffective and that the PAYE and NICs remained due. The company appealed against this.

The outcome of the tribunal was that PAYE/NIC was due on the entries and that it was not possible to avoid them by a prior year adjustment. The appeal by the company was dismissed.

Clearly the directors of this SME were not aware of the potential dangers that an ‘informal’ approach to their records might bring. 

The points arising during the tribunal are very interesting and are useful to members when advising clients on similar issues:

PAYE/NIC on deemed salary:

• any salary, wages or fees obtained by an employee (or director) if it is in money or money's worth, that constitutes an emolument of the employment, is chargeable to income tax
• the amount received by an employee (or office holder) will be taken to be the sum net of tax and the PAYE and NIC obligations will sit on top of the sum retained by the employee
• the provisions of section 8 Social Security Contributions (Transfer of Functions) Act 1999 and regulation 80 Income Tax (Pay As You Earn) Regulations 2003 provide HMRC with the power to collect PAYE tax and NICs where it appears to them that there has been under-payment by an employer.

Other issues:

• by reference to the provisions of the Companies Act 2006 (sections 393 and 454) HMRC contended that the accounts had been prepared on a true and fair view and that any attempt by the appellant to restate the accounts by way of the prior year adjustment was incorrect
• there was limited evidence available to the tribunal
• the entries credited to the loan account indicated the director was content for the cash to be continued to be used in the business and had he chosen to do so he could have called in the loan or otherwise enforced the debt he was owed by the company
• the PYA did not appear to have been done properly and in any case although the director sought to absolve the company of its liability to him, he cannot absolve it of its liability to HMRC
• if the appellant had wanted to escape the charge to income tax under PAYE and the charge to NICs he needed to have indicated that he did not consider the annual fees payable to him in advance of each trading year end, before the vote for accruals in his favour and before the entries in the company.

HMRC has updated its  directors’ loan account toolkit , which provides guidance for agents (including a checklist).

Advertisement

• ACCA Careers
• ACCA Career Navigator
• ACCA Learning Community

Useful links

• Make a payment
• ACCA-X online courses
• ACCA Rulebook
• Work for us

Most popular

• Professional insights
• ACCA Qualification
• Member events and CPD
• Supporting Ukraine
• Past exam papers

Connect with us

Planned system updates.

• Accessibility
• Legal policies
• Data protection & cookies
• Advertising

Cookies on GOV.UK

We use some essential cookies to make this website work.

We’d like to set additional cookies to understand how you use GOV.UK, remember your settings and improve government services.

We also use cookies set by other sites to help us deliver content from their services.

You have accepted additional cookies. You can change your cookie settings at any time.

You have rejected additional cookies. You can change your cookie settings at any time.

• Business and industry
• Running a business
• Limited companies and partnerships
• Company closure, administration, liquidation and insolvency

Fact sheet: Director's loan accounts

• The Insolvency Service

Published 31 March 2022

© Crown copyright 2022

This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected] .

Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.

This publication is available at https://www.gov.uk/government/publications/fact-sheet-directors-loan-accounts/fact-sheet-directors-loan-accounts

A director’s loan is when you take money from your company that is not:

• a salary, dividend or expense repayment
• money you’ve previously paid into or loaned the company

The law states you must keep a record of any money you borrow from, or pay into, the company - this record is usually known as a director’s loan account.

For more information on understanding your duties as a director, read our Company health check - keeping your business on track guidance

As a company director you must have your own loan account which should show:

• all cash withdrawals made from the company
• all personal expenses paid with the company’s money

A personal expense is any expense that is not incurred wholly and exclusively for the purpose of the business. Any company money used by you on a personal expense must be recorded and paid back.

Read more on Director’s loans: If you owe your company money

1. Company accounts

The company’s accounts should also show all money withdrawn from the company and all money paid back.

At the end of your company’s financial year, you’ll either owe money to the company, which will be shown as an asset in the balance sheet, or the company will owe you money and will be shown as a liability.

2. Director’s loans must be repaid

The money you borrow still belongs to the company and has to be paid back, even following insolvency.

It may be possible for a Director’s Loan Account to be offset, if you are a shareholder, by declaring a dividend at the company’s year-end, if sufficient funds are available, but otherwise the loan remains repayable.

If the directors of a company are not also the shareholders, separate shareholder approval is required before a director’s loan of £10,000 or more can be made. Without such consent, taking the directors loan could be considered as misfeasance or even theft.

There can be tax implications depending how much is borrowed, and over what time period. Good record keeping is essential to ensure the correct taxes are paid.

3. Paying the interest

If due, you need to pay the correct amount of interest on your loan from the company and if you charge interest on a loan you make to your company, you need to declare the interest as part of your income.

4. If your company is liquidated

If your company is subject to any liquidation proceedings, a Liquidator can take legal action against you to collect any money you owe to the company, in order to repay the company’s creditors. If you cannot afford to repay this money you may be at risk of bankruptcy.

Read more about Director’s loans

5. Case study 1

Despite being aware of an ongoing investigation by the tax office into their company, a father and son sold the company’s only assets for £150,000 and used the proceeds to reduce the amounts repayable by them in relation to their own director’s loan accounts. This left the money unavailable for any potential claim against their company by HMRC or any other creditors.

Additionally, after the directors knew their company was insolvent and had stopped trading, they collected commission of more than £1.6m, of which £1.3m was used to further reduce their director’s loan accounts, instead of repaying the company’s debts.

Once a company is insolvent, the directors’ duties become due to the company’s creditors instead of its shareholders, and so the directors had a duty to repay creditors ahead of themselves. The directors were therefore each banned from acting as a director of a limited company for 6 years.

Read: Unregulated investment brokers banned for repaying themselves £1.3m ahead of creditor

6. Case study 2

Seven associated mini-bond selling companies responsible for the mis-selling of over £20m of loan notes also took £2m from investors after the companies were insolvent.

The marketing of high-risk mini-bonds, used to fund property development projects, was misleading and the directors are believed to have been the beneficiaries of £2.5m through director loan accounts.

Following an investigation by the Insolvency Service, the Court wound up the group of companies in the public interest, and the Official Receiver was appointed as Liquidator.

Read: Magna Group mini-bond companies shut down

Is this page useful?

• Yes this page is useful
• No this page is not useful

Help us improve GOV.UK

Don’t include personal or financial information like your National Insurance number or credit card details.

To help us improve GOV.UK, we’d like to know more about your visit today. Please fill in this survey (opens in a new tab) .

KashFlow Knowledge Base

How can we help you today?

What Is A Director’s Loan?

A director’s loan is the name for money you take from your company that:

• Isn’t a salary, dividend or expense repayment
• Isn’t money you’ve previously loaned or paid into your company

What is a director’s loan account?

A director’s loan account is a thorough record of any money you borrow from the company.

Your director’s account should also keep a record of any money you put into the business. This way, it’s easier to keep a record of all the money moving between you as an individual and your company.

A director’s loan account isn’t a real bank account. It’s a virtual account that exists in your accounting records.

When would I use a director’s loan account?

If your company lends you money, or you pay for items on behalf of the company, then you’ll want to manage a director’s loan account.

You should include a record of director’s loans, both money you owe the company and money the company owes you, in the balance sheet section of your annual accounts.

Director loan tax responsibilities

Your personal and company tax responsibilities will depend on whether the director’s loan account is overdrawn (in which case you owe money to the company) or in credit (where the company owes you money).

If you owe the company money

If you take a director loan then either you or your company might have to pay tax.

If you pay off your director’s loan account before your company’s accounting period, then your company doesn’t need to pay tax on the loan and you don’t need to include anything on your Company Tax Return.

If you pay off the director’s loan account within 9 months of the end of the accounting period, then your company still doesn’t need to pay tax on the loan but you’ll have to include details of it on your Company Tax Return. You’ll need to use the CT600A form to show the amount owed.

If you only pay back part of the director’s loan within 9 months of your company’s year-end, then you’ll have to pay tax on the remaining balance.

If you don’t repay within 9 months, then the company should then pay 25% of the amount owed as Corporation Tax . If the director took a loan from the company after 1 April 2016, then tax (known as section 455) is payable at a 32.5% instead of 25%. Interest will be added to the Corporation Tax until either it, or the full loan, is paid. You’ll be able to reclaim the Corporation Tax but not the interest.

If you don’t repay the loan (it’s “written off”) then the company needs to deduct Class 1 National Insurance through payroll. As the director, you personally have to pay Income Tax on the loan as part of your Self-Assessment return .

You might have extra tax responsibilities if the loan exceeds £10,000 or you paid your company interest on the loan that was below the official interest rate.

If your director’s loan exceeds £10,000 at any point in the year, then it should be classed as a benefit in kind. This means it should be included on your P11D form .

If you paid below the official interest rate, and you’re a director or shareholder, then your company needs to record the interest you pay as company income. It also needs to treat the discount interest as a ‘benefit in kind’.

As recipient of the lower interest rate, you’ll have to record the interest on your Self-Assessment form. You may also have to pay tax on the difference between the amount you paid and the official rate.

If the company owes you money

If you give a loan, then your company won’t pay Corporation Tax on any money you lend it.

If you charge your company interest on the loan, then it’ll count as a business expense for your company and a personal income for you. This means you’ll have to report it on your Self-Assessment tax return.

If you charge interest, then your company will have to pay you the interest minus the basic Income Tax rate of 20%. The company will have to report this Income Tax quarterly, using the CT61 form.

Creating a Director’s Loan Account in KashFlow

To make sure you’re fully compliant with HMRC, it’s important to make sure your accounts are properly updated. In KashFlow’s Accounting Software , this can be done in a couple of steps.

To start, set up a new Directors Loan account by going to  Bank > Add New Account . The three most important fields you should enter on the next page under are;

• Account Name – This should easily identify the bank account, i.e. ‘Jane’s Director’s Loan Account’
• Start Date – This should be a date before the first transaction. To make things easy we advise that you enter 01/01/1970 here.
• Starting Balance – This should be 0.00

When you’re done, click   Add Account . You’re directors loan account is now ready to use.

Recording a Loan

To record a loan from the company to the director you can do that by doing a bank transfer. This transfer represents the amount of money the company has given to you and allows you to reconcile your currency account easily.

To do this go to  Bank > Transfer Money .  Use the options here;

• Date – Enter in the date that you withdrew/transferred the money from the business account to yourself
• Amount – Enter in the amount withdrawn or transferred
• From – This will be the business bank account where the funds originally came from
• To – This will be your directors loan account
• Comment – to make this easy to reconcile you can enter in something like ‘Loan for Stationary′ or similar.

Reimbursement

When you reimburse yourself, simply Transfer money for the Director’s Loan to the Business account. Then the balance will ideally be set back to zero by going to the  Bank > Transfer Money  button.

Use the options here:

• Date – Enter in the date that you deposited the money back into the business account
• Amount – Enter in the amount deposited or transferred
• From – This will be the directors loan account
• To – This will be your business account
• Comment – to make this easy to reconcile you can enter in something like ‘Director’s Loan Repayment’ or similar

Knowledge Base Categories

Api and developers.

• Developer Resources Knowledge Base
• Email Marketing
• Receipt Processors
• Time & Projects
• Advanced Knowledge Base - Bank
• Bank Reconciliation
• Ecommerce Knoweldge Base

Card Payments & Direct Debits

• Direct Debit
• Pay Online Button on Invoices
• Telephone Payments
• Advanced Customers Knowledge Base
• Discounts for Customers
• E-Mail Templates
• Recording E-Mails
• Sending E-Mails
• KashFlow Basics
• KashFlow FAQ
• Tips & Tricks
• QuickBooks Import
• Sage Import

IRIS KashFlow Connect

• Getting Started
• Intermediate
• Basics of Journals in KashFlow
• Standard Journals

Logos, Backgrounds and Themes

• Documents & Themes
• Troubleshooting Logos & Themes

My Account & Subscription

• My Subscription & Payment
• Username, Password & Memorable Word
• PayPay Importer
• Troubleshooting Paypal
• Basic Projects
• Projects Settings

Purchases & Receipts

• Advanced Purchases & Receipts
• Payments - Purchases & Receipts
• Purchase Orders
• Refunds & Credit Notes

Quotes, Proformas & Estimates

• Advanced Quotes
• Basics - Quotes, Proformas & Estimates
• Quotes Settings

Sales & Invoices

• Advanced Sales & Invoices
• Applying Discounts
• Customer Debts
• Refunds & Credit Notes on Sales
• Repeat Billing
• Sales Codes, Products & Pricing
• Stock Management & Control
• Chart of Accounts
• CIS Options
• Configuration Settings
• Invoice Options
• Your Account
• Advanced Suppliers
• Supplier Discounts
• Supplier Statements

Tools & Reports

• Expenditure Reports
• General Reports
• Income Reports
• Project Reports

Troubleshooting

• Accessing, Browsing and Connecting
• Attachments, PDFs & Printing
• EC Sales List
• Online Filing
• Troubleshooting VAT
• VAT Settings

See how IRIS KashFlow works with your business and your books

Watch CBS News

Project 2025 would overhaul the U.S. tax system. Here's how it could impact you.

By Aimee Picchi

Edited By Anne Marie Lee

Updated on: July 12, 2024 / 1:42 PM EDT / CBS News

Project 2025, a 900-page blueprint for the next Republican president, is gaining attention for its proposals to overhaul the federal government. Among those changes: a major restructuring of the U.S. tax code. 

President Biden and Democrats have been citing Project 2025 in recent weeks as they seek to highlight what could be in store if former President Donald Trump wins at the polls in November and retakes the White House in January.  Many of the blueprint's proposals touch on economic matters that could impact millions of Americans, as well as social issues such as abortion and diversity, equity and inclusion, or DEI, topics. 

Project 2025 , overseen by the conservative Heritage Foundation, is spearheaded by two ex-Trump administration officials: project director Paul Dans, who was chief of staff at the Office of Personnel Management, and Spencer Chretien, former special assistant to Trump who is now the project's associate director.

Trump: "I know nothing about Project 2025"

For his part, Trump has distanced himself from the blueprint, writing on Truth Social early Thursday that he isn't familiar with the plan. His campaign has proposed its own goals through " Agenda 47 ," which tends to focus on social and political issues such as homelessness and immigration rather than taxes.

"I know nothing about Project 2025. I have not seen it, have no idea who is in charge of it, and, unlike our very well received Republican Platform, had nothing to do with it," Trump wrote  Thursday.

His pushback comes after Heritage Foundation President Kevin Roberts opined in a podcast interview that the U.S. is "in the process of the second American Revolution, which will remain bloodless if the left allows it to be." 

According to Project 2025's website, its goal is to have "a governing agenda and the right people in place, ready to carry this agenda out on day one of the next conservative administration."

A shift to two brackets

The tax proposals of Project 2025, if enacted, would likely affect every adult in the U.S. by tossing out the nation's long-standing system of multiple tax brackets, which is designed to help lower-income Americans pay a smaller share of their income in federal taxes compared with middle- or high-income workers. 

Currently, there are seven tax brackets — 10%, 12%, 22%, 24%, 32%, 35% and 37% — with each based on income thresholds. For instance, a married couple pays 10% in federal income tax on their first $23,200 of income, and then 12% on earnings from $23,201 to $94,300, and so on. Married couples need to earn over $487,450 this year to hit the top tax rate of 37%.

Project 2025 argues that the current tax system is too complicated and expensive for taxpayers to navigate. To remedy those problems, it proposes just two tax rates: a 15% flat tax for people earning up to about $168,000, and a 30% income tax for people earning above that, according to the document . It also proposes eliminating "most deductions, credits and exclusions," although the blueprint doesn't specify which ones would go and which would stay.

"The federal income tax system is progressive, and people who make more money pay a higher marginal tax rate than people who make less money," Brendan Duke, senior director for economic policy at the left-leaning Center for American Progress, told CBS MoneyWatch. "Conservatives look at that, and they feel that that's unfair to the wealthy to ask them to pay a greater share of their income in taxes than lower income families."

The Project 2025 proposal "is a dramatic reform of how we fund our government, where we ask the wealthy to pitch in more than lower income families," he said. "This shifts taxes from the wealthy to the middle class, full stop."

Project 2025 didn't immediately respond to a request for comment. 

In a statement, the Heritage Foundation said it will ultimately be up to the next conservative president do decide which recommendations to implement, adding "As we've been saying for more than two years now, Project 2025 does not speak for any candidate or campaign." 

Project 2025's tax rates 

Millions of low- and middle-class households would likely face significantly higher taxes under the Project 2025's proposals.

He estimated that a middle-class family with two children and an annual income of $100,000 would pay $2,600 in additional federal income tax if they faced a 15% flat tax on their income due to the loss of the 10% and 12% tax brackets. If the Child Tax Credit were also eliminated, they would pay an additional $6,600 compared with today's tax system, Duke said. 

By comparison, a married couple with two children and earnings of $5 million a year would enjoy a $325,000 tax cut, he estimated. 

"That 15% bracket is a very big deal in terms of raising taxes on middle-class families," Duke said. 

Millions of U.S. households earning less than $168,000 would likely face higher taxes with a 15% rate. Currently, the bottom half of American taxpayers, who earn less than $46,000 a year, pay an effective tax rate of 3.3%  — which reflects their income taxes after deductions, tax credits and other benefits. 

Among other tax and economic changes proposed by Project 2025: 

• Cutting the corporate tax rate to 18% from its current 21%, which was enacted in 2017's Tax Cuts and Jobs Act. Prior to the TCJA, the corporate tax rate stood at 35%.
• Reducing the capital gains tax to 15%. Currently, high-income earners pay a tax of 20% on their capital gains.
• Eliminating credits for green energy projects created by the Inflation Reduction Act.
• Considering the introduction of a U.S. consumption tax, such as a national sales tax. 
• Eliminating the Federal Reserve's mandate to maintain full employment in the labor market.

To be sure, overhauling the tax system would require lawmakers to approve changes to the tax code, which could be difficult if either the House or Senate is controlled by the opposing party. For instance, Trump was able to get his Tax Cuts and Jobs Act passed by a Republican-led Congress, even though no Democrats voted in support of the measure. 

What does Trump say about taxes?

Trump hasn't yet proposed any concrete tax plans, but analysts expect that he would seek to extend the tax cuts enacted through the TCJA if he is reelected. Currently, many of the provisions of the TCJA, including lower tax brackets, are set to expire at the end of 2025. 

One likely scenario if Trump is reelected is that Republican lawmakers would extend the TJCA's tax cuts, while seeking to fund the reduction in tax revenue by repealing some of the clean energy and climate-related provisions in the Biden administration's Inflation Reduction Act, according to an April report from Oxford Economics. Lawmakers could also seek to cut spending on social benefits to offset the tax cuts, the research firm added.

Trump has suggested a proposal to create a 10% tariff for all imports and a 60% tariff for Chinese imports that could raise enough money to eliminate the federal income tax. 

Tax experts also say the math doesn't work out because money raised from new tariffs would fall far short of replacing the more than $2 trillion in individual income taxes collected by the IRS each year. Consumers are also likely to pay more in higher costs for imported consumer goods and services with tariffs tacked onto them, experts note.

"A tariff is a consumption tax, and there is a throughline between [Project 2025's] tax reform and what Trump has talked about, getting rid of taxes in favor of a consumption tax," Duke noted. 

• Donald Trump

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.

More from CBS News

2024 RNC Day 3 fact check of the Republican National Convention

The challenges of navigating an unrelenting news cycle

Who's speaking at the 2024 RNC? Here's a full rundown of people on the list

JD Vance could become first vice president with facial hair in decades

• Corrections
• Campaign 2024
• Putin's war in Ukraine
• Business & Economy
• Media Spotlight
• Waste, Fraud & Abuse
• Inside the Beltway
• Inside the Ring
• Higher Ground
• Entertainment
• Just the Headlines
• Photo Galleries
• Dive Deeper
• 40 years of The Washington Times
• Threat Status
• Energy & Environment
• Banking & Finance
• Health Care Reform
• Second Amendment
• Immigration Reform
• Homeland & Cybersecurity
• Aerospace & Defense
• Taxes & Budget
• Law Enforcement & Intelligence
• Transportation & Infrastructure
• Commentary Main
• Charles Hurt
• Cheryl K. Chumley
• Kelly Sadler
• Jennifer Harper
• Tim Constantine
• Joseph Curl
• Joseph R. DeTrani
• Billy Hallowell
• Daniel N. Hoffman
• David Keene
• Robert Knight
• Clifford D. May
• Michael McKenna
• Stephen Moore
• Tim Murtaugh
• Peter Navarro
• Everett Piper
• Scott Walker
• Black Voices
• To the Republic
• Sports Main
• Washington Commanders
• Thom Loverro
• Horse Racing
• NASCAR & Racing
• District of Sports Podcast
• Sports Photos
• Health Care on the Hill
• Invest in Portugal
• Health Care 2022
• Africa FDI Edition
• Immigration 2022
• Future of Clean Energy
• The Baltic States 2022
• Invest in Ireland
• ESG Investments
• U.S. & South Korea Alliance
• Transportation 2023
• Invest in Malta
• National Clean Energy Week
• Victorious Family
• Energy 2024
• Infrastructure 2024
• Free Iran 2024
• Reinventing after Globalization
• The Chiefs Forum: The Next 100 Days
• Harm Reduction and Public Health
• Subscriber Only Events
• Higher Ground Events
• All Podcasts
• The Front Page
• Politically Unstable
• History As It Happens
• Bold & Blunt
• The Higher Ground
• Court Watch
• Victory Over Communism
• District of Sports
• Capitol Hill Show
• The Unregulated Podcast
• The Rebellion Podcast
• Play Sudoku
• Crossword Puzzle
• Word Search

Happening Now

Get full coverage of the 2024 republican national convention from the washington times.

WATCH: Who wore what? See the hot fashion trends at the RNC Mallory Wilson investigates

VIDEO: Shooter’s attack on Trump doesn’t dent gun-rights fealty at RNC Kerry Picket reports

Make America strong once again: RNC day three in full swing Susan Ferrechio & Seth McLaughlin

Founder of d.c. nonprofit for homeless lgbtq+ youth pleads guilty to diverting covid relief money.

Casa Ruby founder funneled at least $150,000 of taxpayer money to personal accounts in El Salvador

The founder of a D.C. nonprofit group intended to house homeless LGBTQ+ youth and immigrants pleaded guilty to wire fraud Wednesday for moving COVID-19 relief money to private offshore accounts.

Ruby Corado, 53, a transgender woman born in El Salvador , founded Casa Ruby and opened a physical center for the group near Howard University in 2012.

During the pandemic, the organization was given $1.3 million in Paycheck Protection Program and Economic Injury Disaster Loan program funds, the U.S. Attorney’s Office for the District of Columbia said in a release.

In addition to Casa Ruby, Corado was also the owner of “ TIGloballogistics LLC ,” a purported services and consulting business. Corado registered it under the trade name of “Casa Ruby Pharmacy” starting in January 2021, according to an affidavit filed in support of the criminal complaint.

According to the affidavit, Corado transferred $100,000 from a Casa Ruby account that had been given a PPP loan to the TIGlobal account in April 2021, and from there transferred the money to an account in El Salvador held in the name of “Vladimir Orlando Artiga Corado,” Corado’s birth name.

In August 2021, Corado transferred another $100,000 from the Casa Ruby account after it received an EIDL disbursement to the TIGlobal account, before then transferring $50,000 to the account in El Salvador .

Another $149,999 was transferred from TIGlobal to the account in El Salvador in six other transfers over the course of 2021, though the affidavit did not establish a connection between those transfers and COVID-19 relief funds.

The fraud was hidden from the IRS until 2022, when problems with Casa Ruby’s finances became public knowledge.

That disclosure led to Casa Ruby shutting down in July of that year due to problems with paying staff, with rent, and for upkeep of transitional housing. Corado then sold her Prince George’s County home and fled to El Salvador .

Before it shut down, Casa Ruby purported to employ 50 people and to provide services to over 6,000 people a year.

Corado returned stateside and was arrested in Laurel, Maryland, in March 2024, prosecutors said. She now faces up to 20 years in prison for wire fraud at her sentencing hearing in January 2025.

For more information, visit The Washington Times COVID-19 resource page.

• Brad Matthews can be reached at [email protected] .

Copyright © 2024 The Washington Times, LLC. Click here for reprint permission .

Please read our comment policy before commenting.

Click to Read More and View Comments

Click to Hide

Top of the Times

• Kreyòl Ayisyen

CFPB Takes Action Against Fifth Third for Wrongfully Triggering Auto Repossessions and Opening Fake Bank Accounts

Bank will pay consumer redress and is banned from using sales quotas that spawn fraud

WASHINGTON, D.C. - The Consumer Financial Protection Bureau (CFPB) today took action against repeat offender Fifth Third Bank for a range of illegal activities that would result in the bank paying $20 million in penalties in addition to paying redress to approximately 35,000 harmed consumers, including about 1,000 who had their cars repossessed. Specifically, the CFPB is ordering Fifth Third Bank to pay a $5 million penalty for forcing vehicle insurance onto borrowers who had coverage. The CFPB also filed a proposed court order that would require Fifth Third Bank to pay a $15 million penalty for opening fake accounts in the names of its customers. The proposed court order bans Fifth Third Bank from setting employee sales goals that incentivize fraudulently opening accounts.

“The CFPB has caught Fifth Third Bank illegally loading up auto loan bills with excessive charges, with almost 1,000 families losing their cars to repossession,” said CFPB Director Rohit Chopra. “We are ordering the senior executives and board of directors at Fifth Third to clean up these broken business practices or else face further consequences.”

Fifth Third Bancorp (NASDAQ: FITB) is a large bank holding company with $214 billion in assets headquartered in Cincinnati, Ohio. Fifth Third Bank operates approximately 1,300 branches in 12 states, primarily in the Midwest and Southeast, offering financial services including credit cards, mortgages, home equity lines of credit, and auto loans.

Today’s CFPB order, the first of the actions, addresses the CFPB’s findings that Fifth Third Bank illegally triggered repossessions and charged illegal fees by forcing loan borrowers into unnecessary and duplicative coverage policies. Between July 2011 and December 2020, more than 50% of the policies were charged to borrowers who had either always maintained their own coverage or obtained the requisite coverage within a 30-day timeframe of their prior policy lapsing. Specifically, Fifth Third Bank’s conduct harmed borrowers by:

• Charging extra fees for unnecessary and duplicative coverage: In more than 37,000 instances, Fifth Third Bank illegally charged fees that provided no value at all. In some cases, the policy was duplicative of coverage borrowers already had on their vehicles. Some cases involved the consumer obtaining the requisite coverage within 30 days of lapse and did not have the force-placed policy canceled in its entirety. These borrowers paid over $12.7 million in illegal, worthless fees. While consumers received coverage with no value, Fifth Third Bank profited. When the unnecessary or duplicative coverage was cancelled, borrowers were entitled to a refund of the illegally charged fees. But instead of refunding the money directly to borrowers, Fifth Third Bank applied the refunds to consumers’ outstanding loan balances. Fifth Third also reinsured its coverage program and made millions by getting paid fees that far exceeded any claim losses under the program.
• Punishing borrowers with repossessions: Fifth Third Bank demanded borrowers pay for coverage they did not need or else face delinquency, additional fees, and repossessions. Fifth Third Bank conducted repossessions of vehicles when the delinquency was caused by the bank charging unnecessary and duplicative coverage.

The second of the two actions announced today resolves the CFPB’s March 2020 lawsuit against Fifth Third Bank for creating fake customer accounts and using a “cross-sell” strategy to increase the number of products and services it provided to existing customers.

Enforcement Actions

Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, including those engaging in unfair, deceptive, or abusive acts or practices. The CFPB’s order requires and, if entered by the court, the proposed order would require the bank to:

• Make harmed consumers whole : The orders require Fifth Third Bank to pay redress to about 35,000 harmed consumers.
• Ban sales goals that led to fake accounts: The proposed order would prohibit the bank from setting sales goals for its employees that incentivize the opening of unauthorized accounts.
• Pay $20 million in fines: Fifth Third Bank must also pay a $5 million penalty for its illegal activity, and if the court enters the proposed order, a $15 million penalty for opening unauthorized accounts. Both penalties will be deposited to the CFPB’s victims relief fund .

In 2015, the CFPB took two actions against the bank – one for discriminatory auto loan pricing, which was a joint CFPB and U.S. Department of Justice action, and the other for illegal credit card practices. For the discriminatory auto loan pricing action, Fifth Third Bank was ordered to pay $18 million to harmed Black and Hispanic borrowers. For the illegal credit card practices, the bank was ordered to pay $3 million to harmed consumers and a $500,000 penalty.

Read today’s order on illegal auto lending practices .

Read today’s proposed court order on fake accounts .

Consumers can submit complaints about financial products and services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).

Employees who believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to [email protected] . To learn more about reporting potential industry misconduct, visit the CFPB’s website .

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit www.consumerfinance.gov .