Director's Loan Agreement Template for the United Kingdom
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What is a Director's Loan Agreement?
A director's loan agreement is a written contract recording money lent between a company and one of its directors, in either direction, and the terms on which it must be repaid. It sets out the loan amount, any interest, the repayment schedule and what happens on default or if the director leaves. Putting the arrangement in writing helps evidence the transaction, supports proper accounting and tax treatment, and demonstrates that the company complied with the approval requirements in the Companies Act 2006.
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Frequently Asked Questions
Do shareholders need to approve a loan to a director?
In many cases yes, as the Companies Act 2006 requires member approval for loans to directors, though there are exceptions such as certain small loans and expenditure on company business. You should check the relevant thresholds and exemptions before advancing any money.
What is a section 455 charge?
If a close company lends money to a participator, such as a director-shareholder, and the loan is not repaid within the period set out in the Corporation Tax Act 2010, the company may have to pay a tax charge on the outstanding amount. The charge is generally repayable once the loan is cleared.
Does a director's loan have to be in writing?
There is no absolute legal requirement for a written agreement, but recording the loan in writing is strongly advisable. It provides clear evidence of the terms, supports correct accounting and tax treatment, and helps show that approval requirements were met.
Can the company charge interest on the loan?
Yes, the company can agree an interest rate with the director. If a director's loan from the company is interest-free or at a low rate, a taxable benefit in kind may arise under the Income Tax (Earnings and Pensions) Act 2003.
Is this template suitable across the whole of the UK?
The Companies Act 2006 applies throughout the UK, but some related rules, particularly on insolvency and enforcement, differ in Scotland and Northern Ireland. This content is general legal information, not legal advice, so seek professional advice for your circumstances.
About the Director's Loan Agreement
A Director's Loan Agreement usually covers the following.
- Parties and direction of loan: Identify the company and the director, and state clearly whether the company is lending to the director or the director is lending to the company.
- Loan amount and drawdown: Specify the principal sum, how and when it will be advanced, and whether it is a single payment or a facility drawn in tranches.
- Interest: State whether interest is charged, the rate and how it is calculated, bearing in mind that interest-free or low-interest loans to a director can create a taxable benefit.
- Repayment terms: Set out the repayment date or instalment schedule, any right to repay early, and the method of payment.
- Company approval and authority: Confirm that any shareholder approval required under the Companies Act 2006 has been obtained and record the relevant board resolution.
- Events of default and acceleration: Describe the circumstances, such as missed payments, insolvency or the director leaving office, that allow the lender to demand immediate repayment.
- Set-off and deductions: State whether outstanding amounts may be set off against sums owed, such as salary or dividends, subject to applicable employment and wage rules.
- Governing law and jurisdiction: Specify that the agreement is governed by the law of England and Wales, Scotland or Northern Ireland, and which courts have jurisdiction.
GOVERNING LAW
Applicable law
This Director's Loan Agreement is drafted to comply with United Kingdom law. Key legislation includes:
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