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Charging interest on your Directors’ Loan Accounts (DLA) could be a smart move, helping you become more tax efficient. Dive into our DLA explainer and find out how.
When you’re the director of a business, it’s likely that there will be occasions where you borrow money directly from your company, or inject your own capital into the business.
A Directors’ Loan Account (DLA) keeps track of this money owed between the company and its directors. In many companies, the account is in credit – i.e. the company owes money to the director. This can be due to directors injecting startup capital into the company, not drawing dividends they are owed, or other expenses that have been subsidised by the director.
In these situations, it’s worth considering charging interest on the balance that’s due. But how do you do this? And what impact does charging interest have for the director and company?
Let’s take a look at some of the rules around applying interest on DLAs, and the potential benefits this can bring to your company and tax planning.
Any interest you receive is not subject to National Insurance Contributions (NICs) and is particularly tax effective when shielded by the Personal Savings Allowance (PSA).
The reporting requirements for interest on DLAs are no walk in the park. Because of this, it’s a good idea to talk to your professional advisors, so they can make sure you have a workable system in place prior to making any payments. They can also give an opinion of the acceptability of the proposed rate of interest to pay, and how it measures up against current market rates.
Get in touch to talk about interest on your DLA and let’s find how we can help from here at The Stan Lee on your tax affairs.
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