It would be folly to assume that a director could take money from a company and not pay tax on it so when it comes to overdrawn director’s loans the taxman will certainly be on your case.
Even if your company is insolvent and is heading towards liquidation, or has been served with a winding-up petition, any untaxed income will be scrutinised and subject to a tax charge.
HMRC won’t necessarily view your director’s loan as personal income because it is actually a company asset and owed to the business. Therefore, they have a specific set of rules that apply to individuals in these circumstances.
If your overdrawn DLA remains in the red nine months after the end of your company’s accounting period, the company will be subject to a pretty penal rate of tax known as Section 455, or S455. This tax is charged to the company at a rate of 32.5 per cent from 6 April 2016
This is wholly irrespective of corporation tax; it makes absolutely no difference whether your business has made profits or losses or whether it has paid its tax or no tax – this S455 tax charge on the overdrawn DLA is still payable.
It needs to be paid, as with standard corporation tax, nine months after the end of your company’s accounting period.
If this S455 tax is paid on time, this tax payment is refundable.
However, recovering this tax payment can be a long process with HMRC stating that ‘repayment of the S455 tax is deferred until nine months after the end of corporation tax accounting period in which the loan is repaid or reduced’.