Taxation of director’s loans could be about to change – for the worse.

The Government has launched another consultation, with the likely intention being to discourage shareholders and director’s loans within small companies and encourage remuneration by increasing salary or dividend.

Currently, director’s loans unpaid at the end of the company’s accounting year, attract an additional corporation tax charge equal to 25% of the loan outstanding (unless the loan is repaid within nine months of the accounting year end date, in which case it can be refunded – albeit with a struggle).

Under consultation is an alternative which sees the rate increased from 25% to 40% and levy an additional permanent charge of 5%, on either the balance outstanding at each year end or on the average loan balance over the year.

Depending on the outcome these changes are likely to be included in the Finance Bill 2014.

If you’re likely to be impacted by this change, get in touch and we can look at alternative ways to provide tax-efficient reward.