New limits on directors’ loans from 6 April 2014

A new £10,000 limit on directors’ loans will be implemented from 6 April 2014.

The announcement is good news for company directors, who can now borrow £10,000 as an interest-free loan (a £5,000 increase from the previous limit).

On the flip-side, the company may face a 25% tax charge on directors’ loans still outstanding nine months after their accounting year ends.

In addition, new anti-avoidance rules mean that a director paying back the loan just before the nine month period is over and re-borrowing the amount, is barred from borrowing again for a period of 30 days.

In this case, temporary funding (e.g. from a relative) is also not allowed.

There is, however, a loophole: If the amount is less than £15,000, the above “leapfrog” method may be used to avoid tax implications.

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