Director Loans: Taxable Interest Benefits and Shareholder Capacity

Key steps and distinctions

Company directors are employees for income-tax purposes, so interest-free or subsidised loans provided in their director capacity produce taxable employment benefits. A bona fide loan made solely in shareholder capacity is distinguished. Evidence includes a genuine debtor-creditor relationship, reasonable repayment expectation and normal loan terms, comparable availability and terms for all shareholders, amounts based on shareholding or an equivalent basis, and contemporaneous approvals and minutes. A loan limited to directors or influenced by office can be remuneration even where the recipient holds shares. Loans must not be diverted to other shareholders to circumvent the analysis. Employers report taxable interest benefits and calculate them for months and balances outstanding, deducting interest actually payable by the director for subsidised loans. From 1 April 2023, the benchmark is the applicable three-month compounded SORA plus 1.5 percentage points, using the stated March and September reference dates; older periods use the specified prime-lending benchmark. The annex illustrates changes in rate and monthly repayment balances across assessment years. Use the relevant period’s published rate rather than one current rate for the entire history, and document capacity when approving the loan.