Director Lending Money to the Company: Accounting, Interest & CT61
A director lending money to company creates a credit balance on the director’s loan account because the company owes money back to the director.
The capital advanced is not normally taxable income of the company. If the director charges interest, however, the company and director can have separate tax and reporting obligations.
What Happens When a Director Lends Money to the Company?
When a director puts personal money into the company without subscribing for shares, the amount will commonly be recorded through the director’s loan account.
HMRC’s guidance distinguishes this from an overdrawn director’s loan. Where the company owes the director money, the DLA is normally in credit and is shown as a liability in the company’s accounts.
The company does not pay Corporation Tax merely because the director has lent it money.
Credit DLA vs Overdrawn DLA
Company Owes Director
The director has introduced personal funds or paid company costs personally and has not yet been reimbursed.
Director Owes Company
The director has taken funds from the company that have not been salary, dividend, expense reimbursement or repayment of an existing credit balance.
Common Reasons the Company Owes the Director Money
Cash Introduced
The director transfers personal funds into the company’s bank account.
Company Costs Paid Personally
The director pays genuine company expenditure from personal funds.
Startup Funding
A director funds initial company expenditure before the business generates sufficient cash.
Equipment Purchased Personally
The director may acquire qualifying company assets with personal money.
Expenses Not Reimbursed
Legitimate company expenses can be credited to the DLA until reimbursement.
Historic Loan Funding
The company may still owe the director from earlier funding rounds or cash injections.
Is Money Lent by a Director Taxable to the Company?
HMRC states that the company does not pay Corporation Tax on money lent to it by a director.
The amount received is a loan rather than trading income.
The accounting records should therefore distinguish a genuine loan from turnover, share capital or other sources of finance.
Where the company genuinely owes the director money, repayment reduces that liability rather than creating a new withdrawal from the company.
Can the Company Repay the Director Tax-Free?
Repayment of genuine loan capital is different from paying salary, dividends or other remuneration.
The amount should, however, be supported by a correctly reconciled director’s loan account so that the company can demonstrate what is actually being repaid.
A payment exceeding the amount owed could move the DLA from credit into an overdrawn position and trigger an entirely different tax analysis.
Repaying a Credit Director’s Loan Account
Can the Director Charge the Company Interest?
Yes. HMRC confirms that interest charged by a director on money lent to the company is generally a business expense for the company and personal income for the director.
The interest should be commercially supportable and should be accounted for separately from repayment of the loan principal.
The director must report the interest income through their personal Self Assessment tax return.
HMRC states that where a company pays interest to a director on money lent to the company, it pays the interest after deducting Income Tax at the basic rate and reports the deduction using CT61.
How Does CT61 Work on Interest Paid to the Director?
HMRC’s current guidance states that the company should pay the director the interest net of basic-rate Income Tax, currently 20%.
The company then accounts to HMRC for the tax deducted through form CT61.
CT61 reporting is separate from the company’s ordinary Corporation Tax return and should not be overlooked where interest has been paid or credited.
Interest Paid to a Director
pays £800 to the director and accounts for the £200 deducted to HMRC through CT61, subject to the normal rules.
CT61 Is a Separate Periodic Filing
GOV.UK states that companies report and pay Income Tax deducted from qualifying interest using CT61 every quarter.
CT61 should therefore be incorporated into the company’s compliance calendar where director-loan interest is being paid.
How Is a Credit Director’s Loan Shown in the Accounts?
HMRC states that where the company owes money to the director at the end of the financial year, that amount should be reflected on the company’s balance sheet.
Reconcile the DLA
Confirm all amounts introduced and repaid.
Separate Interest
Do not mix interest expense with loan principal.
Present the Liability
Show the amount owed to the director appropriately in the accounts.
Review Disclosure
Consider relevant related-party and statutory disclosure requirements.
Reconcile CT61
Match interest and tax deductions to accounting records.
Carry Forward Balance
Bring forward the correct outstanding loan into the next period.
Capital Repayment and Interest Are Not the Same Thing
Repaying the director’s loan reduces the amount owed on the balance sheet.
Interest, by contrast, is a separate expense of the company and income of the director.
Mixing the two can lead to incorrect accounts, CT61 reporting and personal tax reporting.
Should the Director Have a Loan Agreement?
For a small owner-managed company, not every director loan is documented through a complex finance agreement.
However, where the amount is significant or interest is being charged, written terms can provide useful evidence of the amount lent, interest rate, repayment terms and whether the loan is repayable on demand.
Legal advice may be appropriate for substantial or unusual financing arrangements.
What Happens to a Credit DLA if the Company Becomes Insolvent?
Where the company owes the director money, the director is in the position of a creditor rather than a debtor.
Recovery then depends on the company’s assets, the legal terms of the loan and the normal insolvency priority rules.
This is very different from an overdrawn DLA, where the liquidator may seek repayment from the director.
Read Director’s Loan on Liquidation →The director may have a creditor claim against the company, subject to the relevant insolvency and legal rules.
What Should Be Recorded When a Director Lends Money to the Company?
Mistakes With Money Lent by Directors
Related Director’s Loan Guides
Director Funding Connects With Bookkeeping, Accounts & Tax
The director’s loan should be reconciled through the bookkeeping and correctly reflected in annual accounts, Corporation Tax records and CT61 reporting where interest is paid.
Director Lending & CT61 Resources
Director Lending Money to Company FAQs
Can a director lend money to their own company?
Yes. A director can advance personal funds to the company, usually creating a credit balance on the director’s loan account.
Does the company pay Corporation Tax on the money lent?
HMRC states that the company does not pay Corporation Tax simply because the director has lent it money.
Can the company repay the director’s loan?
Yes. Genuine repayment of loan capital reduces the amount the company owes to the director.
Can the director charge interest?
Yes. HMRC states that interest charged to the company is generally a business expense for the company and personal income for the director.
Does the company deduct tax from the interest?
HMRC states that the company normally pays the director interest after deducting basic-rate Income Tax and accounts for that deduction using form CT61.
What rate of tax is deducted from the interest?
HMRC’s current guidance states that basic-rate Income Tax of 20% is deducted from qualifying company interest payments.
Does the director declare the interest personally?
Yes. HMRC states that the director reports the interest as personal income through Self Assessment.
How is the director’s loan shown in the company accounts?
Where the company owes the director money at the year end, the balance is normally shown as a liability in the company’s balance sheet.
Is a credit DLA subject to s455 Corporation Tax?
A credit DLA means the company owes the director, which is fundamentally different from the type of participator borrowing targeted by section 455.
What happens if the company cannot repay the director?
The director may be a creditor of the company. If the company is insolvent, recovery will depend on the relevant insolvency rules and available company assets.
Keep the Loan, Interest and CT61 Position Properly Recorded
Tell us the amount introduced, outstanding DLA balance, whether interest is being charged and whether any interest has already been paid.
Tell Us About the Money Lent to the Company
We can review the accounting balance, repayment position and interest reporting requirements.