Personal loans by directors
When a company director needs to raise finance for the company it can sometimes be easier for the director to take out a personal loan and then loan the funds to the company. In this situation so long as the rate is commercially justifiable the company can pay interest on the loan to the director.
These interest payments will be deductible from the company’s profits for corporation tax purposes. However unless the loan is for a specified period of less than one year the company may be required to deduct and pay over to HMRC basic rate tax from the interest due. This is because for the director the interest payments are taxable income although this can be offset against any interest paid on the personal loan.