New Changes to Director Loan Accounts (DLA) April 2016
Most owner mangers of small companies have a director loan accounts (DLA) and sometimes these go overdrawn.
HMRC legislation states that an overdrawn DLA should be cleared within 9 months following the end of the company’s trading year.
If the loan is not repaid in that time, the company will incur a penalty charge under section 455 of the Corporation Tax Act 2010.
This charge is paid alongside the corporation tax.
Before 6 April 2016 the penalty charge was 25% of the value of the loan however, this has now increased to 32.5%.
What are the director’s options?
1) Personal Funds - use own money to clear the loan
2) Bonus Payment – a bonus can be voted to the director which is used to repay the loan
3) Dividend Payment – a dividend can be voted, documented and the director can use this to repay the outstanding loan amount
Based on the a company’s circumstances, any of the above mentioned options can work.
The key is to try avoid getting to this point in the first place.
A perfect way to doing this, would be to engage a proactive accountant to advise accordingly.
Please feel free to contact us on 01909512120 – we can assist