With interest rates shifting, directors might be tempted to dip into company funds for short-term personal borrowing. After all, HMRC’s official rate of interest (ORI) on employee loans is currently 3.75% per annum (from 6 April 2025), compared to an average 4.74% on 30-year fixed mortgages as of August 2025.
At first glance, using company money to clear expensive personal debts or even refinance a mortgage looks like a tax-efficient move. But be careful — directors’ loans are tightly regulated, and getting it wrong could be costly.
How Long Do You Have to Repay a Director’s Loan?
If you borrow from your company, the loan must be repaid within nine months and one day of the end of the accounting period.
Fail to do so, and the company will face a 33.75% corporation tax charge on the outstanding balance. While this tax can be reclaimed once the loan is repaid, refunds cannot be claimed earlier than nine months and one day after the end of the period in which the debt was cleared. And to make matters worse, HMRC is notoriously slow at processing these repayments.
A key point: claims for relief must be made within four years of the accounting period in which the loan was cleared — otherwise, the refund is lost.
The 30-Day ‘Bed and Breakfast’ Rule
Some directors have tried to sidestep the rules by repaying loans just before the nine-month deadline and then immediately borrowing again. To tackle this, HMRC applies the 30-day rule:
- If £5,000 or more is repaid to the company, and within 30 days a further loan of £5,000 or more is taken out, the repayment is treated as covering the new loan, not reducing the old one.
- In effect, only the net reduction in borrowing counts.
The Autumn 2024 Statement went further, tightening the rules to stop companies using group or related companies to pass the debt around and avoid the nine-month trigger.
Are There Any Exemptions?
Yes — some smaller loans are exempt from the corporation tax charge:
- The loan must be £15,000 or less.
- It must be to a full-time employee who does not hold a material interest in the company.
However, beware of the ‘intention and arrangements’ rule. If the outstanding balance before repayment was at least £15,000, and there are plans to borrow at least £5,000 again, the exemption won’t apply — even if the new borrowing falls outside the 30-day window.
Practical Tip
The anti-avoidance rules don’t apply where repayments are made in the form of taxable salary, bonuses, or dividends — as these already trigger an income tax charge.
Also, if the loan exceeds £10,000, consider charging interest at least at HMRC’s ORI to avoid a benefit-in-kind charge.
Final Thoughts
Directors’ loan accounts can be a useful tool for short-term borrowing, but the rules are complex, and HMRC’s anti-avoidance measures mean there’s little room for error. What looks like a quick fix could quickly turn into an expensive mistake.
Need Advice on Directors’ Loans?
If you’re considering taking money from your company, or you’ve already got a directors’ loan in place, it pays to get expert advice.
Contact Jon and the team at Jon Davies Accountants today, and we’ll help you plan ahead and avoid any unwelcome tax surprises.
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