Overdrawn Directors loan Account, Overdrawn Directors Loan Account, HBG Advisory

Same Day - Initial "FREE" advice -In total Privacy online - Confidentiality Assured

Covid-19 affecting your business? Same-day Rescue & Recovery Options Available.

Free Director Advice & Support TODAY.

Our Licensed Insolvency Practitioners offer Confidential Safe Advice online.

Book a Virtual Meeting - Free Confidential Advice
If you need help understanding the best way forward for your company, we can provide confidential free initial advice. You can book a free virtual meeting or call us on 0800 612 5448.

Overdrawn Directors Loan Account.

An Overdrawn Directors Loan Account is an asset of a company and then requires repayment in a Liquidation.

A director’s loan account accounts for transactions between the Company and the then directors.

Suppose then a director uses his credit card or his own money to pay for company expenses. The Company then owe’s money to the director. The amount Credited to the director’s loan account, until paid back to the director, will then show as a creditor. (That is, the Company owes the director). Suppose the director uses money or a credit or debit card from the Company. Then any payment will be debited to his loan account, and he will be a debtor of the Company until credits appear reducing the balance or indeed paying it back. (In this case, the director owes money to the Company)

The loan account accounts for these transactions and accurately will reflect the position of the account at a given time. (Like a bank statement).

Records You Are Required To Maintain

Directors are required to ensure records of account are maintained at all times. Likewise, a record of monies you borrow from your company or pay into the company then must be kept up to date. This account is referred to as a ‘director’s loan account’.

At the end of your company’s financial year

Ensure ALL monies owed by directors to the company or the company owes you are reflected on the company ‘balance sheet’ in your annual accounts.

Tax on loans

You probably may be required to pay tax on the director’s company loans. Additionally, your company may be responsible for paying tax if you’re a shareholder ( ‘participator’) and a director.

Your personal and company tax remain on whether any director’s loan account remain:

Directors Loan Accounts (OVERDRAWN) and in Liquidation.

Overdrawn directors loan account refers to when a director owes money to the Company (A Company Debtor). In Liquidation, the Liquidator will collect any overdrawn director loan account as viewed as a debt owed to the Company.

Accountants advise directors, especially when also shareholders that the most tax-efficient way to pay themselves is by paying enough through the company payroll to cover National Insurance Contributions, then the balance as drawings. (This though requires profit to pay drawing on account of year-end dividends)

Drawings are when the directors take money from the Company, not through the payroll and lead to the balance on the directors’ loan account, overdrawn. i.e. the director owes that money back to the Company.

At the year-end, the accountant acting for the Company finalises the available profit and declares an annual dividend. Dividends require crediting to the overdrawn directors’ loan account, which hopefully, along with other potential credits, clears the overdrawn balance and may show the director as a creditor of the Company.

If though, the Company has made an insufficient profit to clear the directors’ account. Then the account is overdrawn, and they owe the company money, presenting a problem once a liquidator is appointed, as often, directors have either forgotten or unable to repay the Company.

Liquidators Duty To Collect

The Liquidator has little or no movement when overdrawn directors loan account occurs (But blamed when collecting it). The Liquidator collects all debts owed to the Company as part of their duty. Their accountants must advise directors to monitor the situation monthly. When profits reduce, tax-saving will no longer be a priority. If this is the situation, it may be the director is then rewarded through the company payroll, if no profit exists.

If a company enters into Liquidation, and a balance shows owing on the overdrawn directors’ loan account. The loan account forms part of the assets of the Company. Then, the Liquidator has a statutory duty to realise it.

Insolvency Practitioners try to look at overdrawn directors loan accounts reasonably. Perhaps the report has not been updated with what the director may have paid out on behalf of the Company but not accounted for it, by way of a legitimate expense voucher.

Liquidator remains duty-bound, ensuring a financial reconciliation of monies in and out the Company’s bank account and additionally account for transactions in the directors’ loan account. Liquidators request the directors for receipts and evidence to support any claim that the directors may be able to make.

These amounts, if correct and verified, can be deducted from the overdrawn directors’ loan account,  therefore, reducing the balance owed.

If a balance remains outstanding, then an arrangement will need to be entered with the Liquidator, to repay that loan account. Maybe the director can then repay the balance on the loan account using their savings.

Overdrawn Directors loan Account, Overdrawn Directors Loan Account, HBG Advisory
Overdrawn Directors loan Account, Overdrawn Directors Loan Account, HBG Advisory
Overdrawn Directors loan Account, Overdrawn Directors Loan Account, HBG Advisory
Overdrawn Directors loan Account, Overdrawn Directors Loan Account, HBG Advisory
We Listen to your needs
FREE Initial Meeting
Understanding Business Rescue

    Get Help Today
    1. Name: (*)
    2. Company Name:
    3. Telephone: (*)
    4. Email:
    5. Message:

    *Required Fields

    CALL TODAY FOR
    EXPERT CONFIDENTIAL ADVICE

    0800 612 5448