When it comes to owning your own business, there are perks and responsibilities, stressors, and rewards. One of the areas that can easily become all four of those is the debit loan.
So, what exactly is a debit loan?
A debit loan is any amount of money that is lent by the business to a shareholder or director of the company. This is any form of payment from the company account for a personal asset or experience for a director or shareholder. This means that personal payments via the company card are classified as a debit loan.
What are the requirements for a debit loan?
There are a few requirements before a company can offer or claim a debit loan with regards to specific company payments. These requirements can be found in the Company Act in Section 44-45. The technical and legal jargon of these sections can be difficult to wade through, however, the nutshell version is that a company needs to be able to pass a liquidity and solvency test directly after issuing the loan for the loan to be made. Should this not be attainable, the loan is not permissible. Essentially, a business cannot be put into the black to issue a personal loan to a director or shareholder.
What does this mean?
As a business owner, there might be reasons to take a debit loan out and there might be reasons why an accountant would advise you not to, and usually this would be the case. The best idea would be to chat with an accountant beforehand.
If you need any help
If you have any questions, need help understanding the ins and outs of tax, or are looking to have someone else handle your taxes entirely, contact us at firstname.lastname@example.org, via our website, or on social media.