NIM12016 | Class 1: Calculating Class 1 NICs for Directors: Directors loan accounts: Background

Regulation 22 Social Security (Contributions) Regulations 2001

A director’s loan, or current account, with his or her company represents from the company’s viewpoint transactions between the company and the director. It is like a bank account in that it can be in credit (‘cr’ or what the company owes to the director) or in debit (‘dr’ or what the director owes to the company). Similarly there might be an agreement to pay interest, in either direction, depending on whether the account is in credit or overdrawn. Unlike a bank account however, the value of items other than cash can be debited or credited. For example, the account might reflect

• the transfer of ownership of any personal asset to the company

• the transfer of ownership of any business asset to the director

• the entitlement to dividends from the company

• payment by the company of personal expenditure

• payment by the director of business expenditure

• remuneration voted

• loans to the director

• repayment of loans by the director.

If an asset is transferred, the value shown is that placed on it by the company and is not necessarily the open market value at the date of transfer. The company should always have a record of the transactions with its directors. The balance at the end of the company’s accounts year will be shown in the balance sheet to the statutory accounts. The balance might be either specifically identified or be part of other creditor or debtor balances. The following is a simple summarised example of a loan account, for a company with a 31 January accounts year-end: