Interest on a Director’s Loan: Tax, P11D, Official Rates & CT61
Interest on a director’s loan can have very different tax consequences depending on whether the company has lent money to the director or the director has lent money to the company.
Where the company lends to the director, HMRC’s beneficial-loan rules and official interest rate may apply. Where the director lends to the company, interest paid to the director can require Income Tax deduction and CT61 reporting.
How Does Interest on a Director’s Loan Work?
The phrase “director’s loan” can describe two completely different accounting positions.
An overdrawn director’s loan means the director owes money to the company. A credit director’s loan means the company owes money to the director.
The tax treatment of interest depends on which of those two situations applies.
When Does a Beneficial Loan Arise?
HMRC describes a beneficial loan as an employment-related loan that is interest-free or charged at a rate below the appropriate official rate of interest.
The taxable benefit is generally based on the difference between the interest calculated using HMRC’s official rate and the interest actually paid by the director.
This means an overdrawn director’s loan can create an employment benefit even where the capital itself is expected to be repaid later.
Current actual official rate from 6 April 2026.
Always check HMRC’s current rate for the period being reviewed.What Is HMRC’s Current Director Loan Interest Rate?
HMRC’s published actual official rate for beneficial loans is currently 3.75% from 6 April 2026.
That rate is used when calculating the employment benefit on relevant cheap or interest-free loans.
Historical loans should be calculated using the rate that applied during the relevant period rather than simply applying today’s rate.
How the Interest Benefit Can Be Calculated
The actual taxable benefit can depend on changes in the loan balance, timing, interest actually paid and whether the averaging or precise calculation method is appropriate.
What If the Director Pays Some Interest?
Charging interest does not necessarily eliminate the beneficial-loan benefit if the rate charged is below HMRC’s official rate.
The benefit is generally the difference between the appropriate official-rate interest and the interest actually paid by the director.
The accounting records should distinguish interest charged from interest actually paid.
P11D and Class 1A National Insurance
Where a taxable beneficial loan exists, employment benefit reporting should be considered.
Calculate the Benefit
Determine the taxable interest benefit for the relevant tax year.
Report the Benefit
A non-exempt beneficial loan can require P11D reporting.
Class 1A NIC
The employer can be liable to Class 1A National Insurance on the value of the taxable benefit.
A separate small-loan exemption can apply where total relevant loans do not exceed £10,000 at any time during the tax year and the other statutory conditions are met.
Interest Is Only Part of the Beneficial Loan Analysis
Before calculating a taxable benefit, the company should first determine whether an exemption applies.
The £10,000 small-loan exemption is particularly relevant for director-shareholders with relatively modest overdrawn loan balances.
Read Director’s Loan Over £10,000 →Charging Interest Does Not Automatically Remove s455
The beneficial-loan regime and section 455 Corporation Tax are separate tax rules.
Charging the director interest can reduce or remove the employment benefit, but the company can still have an s455 liability where the close-company loan rules apply.
Both regimes should therefore be reviewed separately.
Read s455 Corporation Tax →What If the Company Pays Interest to the Director?
Where the director has lent personal money to the company, the interest flows in the opposite direction.
HMRC treats the interest as personal income of the director and, subject to the normal rules, an expense of the company.
The interest should be separated from repayment of the original loan capital.
Read Director Lending Money to the Company →Where qualifying yearly interest is paid to an individual director, the company normally deducts basic-rate Income Tax and accounts for that tax to HMRC using CT61.
Interest Can Create a Separate CT61 Filing Obligation
The company should not simply pay the gross interest to the director without considering whether tax must be withheld.
The director then reports the gross interest as personal income, taking account of tax already deducted where appropriate.
Company Paying Interest to the Director
Is Director Loan Interest Deductible for Corporation Tax?
Interest paid by the company on genuine borrowing is generally considered under the company’s loan relationship rules and can be deductible subject to the normal Corporation Tax provisions.
The interest should relate to the company’s borrowing and be correctly accrued and recorded.
Unusual, excessive or non-commercial arrangements can require additional review.
Interest received from the company is different from repayment of the director’s original loan capital.
The Director Should Report the Interest Personally
Interest paid by the company is personal income of the director and may need to be included in the director’s Self Assessment tax return.
Any Income Tax already deducted by the company should be taken into account when calculating the director’s personal liability.
What Should a Director Loan Agreement Say About Interest?
Keep Interest Separate From Loan Principal
Loan Principal
Record the underlying amount borrowed or advanced separately.
Interest Accrued
Record the finance charge for the relevant accounting period.
Interest Paid
Track when the company or director actually pays the interest.
Tax Deducted
Record CT61 deductions where company interest is paid to the director.
P11D Benefit
Record beneficial-loan calculations where the company is lender.
Year-End Balance
Reconcile both the loan capital and any interest balances.
What Should Be Reviewed?
Mistakes With Interest on Director’s Loans
Related Director’s Loan Guides
Director Loan Interest Connects With Tax, Payroll & Accounts
Correct treatment can require bookkeeping, annual accounts, payroll reporting, Corporation Tax and personal tax to work together.
Director Loan Interest Resources
Interest on a Director’s Loan FAQs
What is the current HMRC official interest rate for director loans?
HMRC’s current published actual official rate for beneficial loans is 3.75% from 6 April 2026.
Does a director have to pay interest on an overdrawn DLA?
Not necessarily, but an interest-free or low-interest employment-related loan can create a taxable beneficial-loan benefit where no exemption applies.
What happens if interest is charged below HMRC’s official rate?
A taxable benefit can generally arise on the difference between the official-rate interest and qualifying interest actually paid.
Does charging interest remove s455 Corporation Tax?
No. Beneficial-loan rules and section 455 are separate regimes. Charging interest does not by itself remove an s455 exposure.
Does a beneficial loan need to go on a P11D?
Where a taxable non-exempt beneficial loan exists, P11D reporting and Class 1A National Insurance should be considered.
Can a director charge interest when lending money to the company?
Yes. Interest paid by the company can be income of the director and a finance cost of the company subject to the normal tax rules.
Does the company deduct tax from interest paid to the director?
Qualifying company interest paid to an individual director can require basic-rate Income Tax to be deducted and reported through CT61.
Is repayment of the director’s original loan taxable interest?
No. Repayment of genuine loan capital is different from interest. The two should be recorded separately.
Does the director report company interest on Self Assessment?
Interest received from the company is personal income and may need to be included in the director’s Self Assessment return.
Check Whether P11D, s455 or CT61 Applies
Tell us who lent the money, the balance outstanding, interest rate, company year end and whether interest has actually been paid.