Introduction to this document

Director’s loan account write-off letter

An overdrawn director’s loan account can be cleared by the company if the directors or shareholders agree to write the loan off. However, it must get the paperwork right.

Reporting requirements

Where a director or shareholder’s loan is written off, s.415 Income Tax (Trading and Other Income) Act 2005 says that it’s taxed as income in the same way as a dividend. The director must report the write-off in their self-assessment personal tax return and the company notify the HMRC office handling its tax.

A record of the write-off should be kept by the company and the director shareholder; you can use our letter to do this and notify HMRC of the transaction.