Skip to main content

Is An Overdrawn Director’s Loan Account Illegal Overview

The answer to the question Is An Overdrawn Director’s Loan Account Illegal? is generally no, it would not be unlawful.

However, a company cannot provide a loan to a Director without consideration of the shareholders if the amount is more than £10,000.

Is An Overdrawn Director's Loan Account Illegal?

What Is An Overdrawn Director’s Loan Account?

An Overdrawn Director’s Loan Account is the net balance of monies that a Director owes to a company after accounting for the monies they may have lent to the company and monies they are entitled to have received from the company.

Monies A Director Has Received

Monies a Director may have received from a company could take the form of loans or payments that a company has made on behalf of a Director in respect of personal expenses.

Monies A Director Is Entitled To Receive

Monies a Director is entitled to receive from a company will usually take the form of the following:

  • Salary or wages.
  • Dividends if they are also a shareholder.
  • Monies they have lent to the company.
  • Expenses they have paid on behalf of the company from their personal funds.

Can An Overdrawn Director’s Loan Account Be Illegal?

An Overdrawn Director’s Loan Account is generally not illegal or unlawful.

However, if a Director has taken a loan from a company without shareholder approval, which exceeds by more than £10,000 the amount the company owes to them then this would be unlawful.

Section 197 of the Companies Act 2006 (“Section 197”) does not permit without shareholder approval a company making a loan to a Director. But Section 207(1) of the Companies Act 2006 does permit this as an exception if the sum does not exceed £10,000.

Disclosure Of An Overdrawn Director’s Loan Account

When a company has an overdrawn Director’s loan account this must be disclosed in its accounts and to HMRC in the Corporation Tax return by way of a supplemental sheet CT600A.

In the accounts, in light of Section 413 of the Companies Act 2006 the overdrawn Director’s loan account must be disclosed in the notes showing the amount advanced, any amounts repaid, written off or waived and details of any interest charged.

Disclosure to HMRC is in the Corporation Tax return supplemental sheet CT600A setting out details of the loan arrangements.

GET IN TOUCH FOR HELP

For a free no obligation chat about any of the matters detailed above, please do get in touch for help. An expert will call you back or if you prefer exchange emails.

We can explore your situation and consider the best way to help you and your business needs. You can call us 020 3925 3613 or fill in the form below and will get back to you quickly. We Know Insolvency Inside Out.

Author: Elliot Green
Last Updated: May 20, 2024

Please enable JavaScript in your browser to complete this form.

Name

100% Confidential Advice
We Know Insolvency Inside Out

Share This Page!

What Next?

Expert Advice Is Just A Click Away

If you have any questions in relation to Is An Overdrawn Director’s Loan Account Illegal? then contact us as soon as possible for advice. Oliver Elliot offers a fresh approach to insolvency and the liquidation of a company by offering specialist advice and services across a wide range of insolvency procedures.

Our expertise is at your fingertips.

Please enable JavaScript in your browser to complete this form.
Name

By submitting this form you agree with the storage and handling of your data by Oliver Elliot. For more details, please read our Privacy Policy.

Opt in

Disclaimer: Is An Overdrawn Director’s Loan Account Illegal?

This page is not legal advice and is not to be relied upon as such. This article Is An Overdrawn Director’s Loan Account Illegal? is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

Recent Posts / View All Posts

Directors' conflict of interest

Directors’ Conflict Of Interest Leads To Loss Of Ransom Strip

| Director Transactions | No Comments
Directors' conflict of interest was highlighted as an issue in the case of Kendall & Anor v Ball & Anor EWHC 746 (Ch). In a nutshell, this case involved a…
Dividend Tax Avoidance Scheme Apppeal Fails

Dividend Tax Avoidance Scheme Appeal Fails

| Director Transactions | No Comments
A dividend tax avoidance scheme appeal fails after being rejected by the Court of Appeal. This is the case of Clipperton & Anor v Commissioners for His Majesty's Revenue and…
Can An Overdrawn Director’s Loan Account Be A Transaction At An Undervalue

Can An Overdrawn Director’s Loan Account Be A Transaction At An Undervalue?

| Director Transactions | No Comments
Can An Overdrawn Director’s Loan Account Be A Transaction At An Undervalue? It is perfectly possible for transactions that make up an overdrawn director's loan account to be transactions at…
Moving Inter-Company And Director Balances Around And The Effect Of Liquidation

Moving Inter-Company And Director Balances Around And The Effect Of Liquidation

| Director Transactions | No Comments
This article Moving Inter-Company And Director Balances Around And Effect On Liquidation is prompted by the case of Re Pappy Ltd BRIR 1451. Offsetting balances that involve connected parties is…