How do I show a loan between my company and me in the accounts?

FRS 105 paragraph 9.4: a financial asset or liability is recognised only when the micro-entity becomes a party to the contractual provisions. Paragraph 9.5: it is first measured at the transaction price; example 1: "for a loan the transaction price is the amount borrowed or loaned". Paragraph 9.7: transaction costs are added to the cost of a financial asset or deducted from the cost of a financial liability, unless not material; then they are an expense immediately.

Paragraph 9.12: at each year end the loan is carried at the transaction price, plus (for an asset) or minus (for a liability) transaction costs not yet recognised in profit or loss, plus cumulative interest recognised, minus repayments and interest paid or received, and, for an asset, minus any reduction for impairment or uncollectability. Paragraph 9.13: total interest is the difference between the initial transaction price and the total subsequent contractual receipts or payments, excluding transaction costs. Paragraph 9.14(b): interest is allocated at a constant rate on the carrying amount, normally the contractual rate.

The Section C formats do not say which item holds a director loan. Format 2 note (1): creditors falling due within one year and after one year must be shown separately. FRS 105 paragraph 4.4: a creditor is due within one year when the micro-entity does not have an unconditional right, at the reporting date, to defer settlement for at least 12 months. SI 2008/409 Schedule 8 paragraph 6: a loan is treated as falling due on the earliest date on which the lender could require repayment, if it exercised all options and rights available.

SourcesThe law·FRC

FRS 105 paragraph 17.5: a financial instrument is a financial liability where the issuer does not have an unconditional right to avoid settling an obligation in cash or by delivery of another financial asset, other than for the reason in paragraph 17.4. Paragraph 17.4: it is equity where the issuer can be required to settle only in the event of its liquidation.

Paragraph 9.25: a financial liability is derecognised only when it is extinguished, that is, when the obligation is discharged, cancelled or expires. Paragraph 9.26: any gain or loss on derecognition is recognised in profit or loss. That a release extinguishes the liability follows from paragraph 9.25 read with 9.26.

Companies Act 2006, section 413(1): the note covers advances and credits granted by the company to its directors, and guarantees entered into on their behalf.

SourcesThe law·FRC

FRS 105 paragraph 9.8: all financial assets must be assessed for impairment or uncollectability. Paragraph 9.18(c): an asset is impaired if its carrying amount exceeds the total estimated net cash flows it can generate. Where the time value of money is material, those cash flows are the present value, discounted at the asset's current contractual interest rate.

Paragraph 9.21: a financial asset is derecognised when the contractual rights to its cash flows expire or are settled, or when no future economic benefits are expected from it. Paragraph 9.22: any gain or loss on derecognition goes to profit or loss.

SourcesFRC

FRS 105 paragraph 6.2(c): the notes of a UK micro-entity, presented at the foot of the balance sheet, include advances, credit and guarantees granted to directors as required by section 413. Paragraph 6A.3: the details of an advance or credit are its amount, an indication of the interest rate, its main conditions, and any amounts repaid, written off and waived, with totals of the amounts, repayments, write-offs and waivers. For a guarantee: its main terms, the maximum liability that may be incurred, and any amount paid or liability incurred in fulfilling it, with totals.

Companies Act 2006, section 413(6): directors are the persons who were directors at any time in the financial year. Section 413(7): the section applies to every advance, credit or guarantee subsisting at any time in the financial year, whenever it was entered into, and whether or not the person was a director at the time.

SourcesThe law·FRC

Corporation Tax Act 2010, section 464ZA(1) and (2): where, within any period of 30 days, the qualifying amount of repayments made to a close company for one or more chargeable payments made to a person totals £5,000 or more, and the available amount of the relevant chargeable payments made to the person or an associate totals £5,000 or more, and those relevant chargeable payments are made in a later accounting period than the ones repaid, the repayments, so far as not exceeding the relevant chargeable payments, are treated as a repayment of the relevant chargeable payments. A chargeable payment is relevant if, or to the extent that, it is not repaid within the 30 days. Section 464ZB(4): a "chargeable payment" is a loan or advance by a close company which gives rise to a charge to tax under section 455.

Section 464ZA(3): the same treatment applies where, immediately before a repayment, the person owes the company £15,000 or more in chargeable payments, at the time of the repayment arrangements had been made for chargeable payments to replace some or all of the amount repaid, and the chargeable payments to the person or an associate under the arrangements total £5,000 or more. Section 464ZA(4) and (5) stop an amount being matched twice; the 30-day rule is applied first. Section 464ZA(6): the section does not apply to a repayment which gives rise to a charge to income tax on the participator or associate. Section 464ZA(7): the Treasury "may by order vary" the £5,000 and £15,000 sums. Sections 464ZA and 464ZB were inserted with effect from 30 October 2024; section 464C, which some HMRC pages still name, was omitted from that date.

HMRC's Company Taxation Manual (CTM61625): the aim is that only enduring repayments are taken into account in giving section 458 relief; the rules match the repayment with a loan in a later period, so that it is not available to relieve a loan made in the earlier period. CTM61630: repayments count whether made before or after the end of the first accounting period, and any repayment above the new loans can be considered for section 458 relief in the usual way. CTM61635: "arrangements" has a wide meaning, can be made by the participator alone, and the rule has no time limit. CTM61642: the exception covers, for example, a dividend credited to the loan account and included as income on the recipient's tax return, or a bonus subjected to PAYE and NIC before being credited; it does not cover a dividend or bonus paid out in cash and then reintroduced, or a dividend from a separate company.

SourcesThe law·HMRC

Corporation Tax Act 2010, section 455(1) and (2): if a close company makes a loan or advances money to an individual who is a participator in it, or an associate of such a participator, there is due from the company, as if it were Corporation Tax for the accounting period in which the loan is made, an amount equal to the percentage of the loan that corresponds to the dividend upper rate in ITA 2007 section 8(2) for the tax year in which the loan is made. Section 455(3): it is due and payable on the day following the end of the period of 9 months from the end of the accounting period in which the loan was made. Section 455(4): a person incurring a debt to the close company is treated as a loan. Section 455(7): exceptions are in section 456.

HMRC's Company Taxation Manual (CTM61505): the exception for a loan is where it was made in the ordinary course of the company's business and that business includes lending money. The rate for loans made on or after 6 April 2022 was 33.75% and from 6 April 2026 is 35.75%. The charge applies to a loan made in an accounting period rather than the total outstanding at its end. The charge "as if it were an amount of CT" does not make the loan by itself a distribution or income of the recipient. Loans on beneficial terms to a participator who is also a director or employee may give rise to a charge on the individual under the employment income rules. The company must include any section 455 liability in its Company Tax Return.

Section 458: relief from the tax, or a proportionate part, is given if the loan is repaid, released or written off, on a claim made within 4 years from the end of the financial year in which that happens. Where that happens on or after the day the tax becomes due and payable, relief may not be given before the end of 9 months from the end of the accounting period in which it happened.

SourcesThe law·HMRC