When you’re a director of a business it will be very likely that at times you will borrow money from your company or inject your own cash in the business. These transactions are kept track of through your Directors Loan Account (DLA). In most companies this balance will show that money is owed from the company to you, the director, for various reasons.
In these situations, especially when the balance is large, it is worth charging interest on the balance. We’ve detailed below some of the key rules and potential benefits of charging interest.
- Any interest charged on your DLA balance will be tax deductible, meaning that you could save up to 25% of the interest amount.
- For any individual basic rate taxpayer you have a Personal Savings Allowance of £1,000, meaning that you get up to £1,000 tax free on any interest earned. This includes any interest on DLA balances.
- The interest rate needs to be a commercial rate, i.e. the rate must not exceed the expected rate from a third party lender.
If you’re looking to start to include interest on your DLA balance please get in contact with us so that we can help make sure you’re ticking all the boxes and making the most tax savings.
