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Introduction to this document

Election to aggregate loans

If you have a number of loans to and from your company, aggregating them can save you money.

Loan benefit

Where your company lends you money on which you pay no interest, or interest below HMRC’s official rate (2.5% since April 2017), it counts as a taxable benefit in kind. Because the official rate is low the resulting tax bill is usually relatively modest, but in some situations it can be disproportionately costly.

One way of reducing the cost is to see if there are loans to the company that can be used to offset the balance. By default, different loans are treated seperately for tax purposes. However, it is possible for you to make an election to aggregate them.

Loan account

Let’s assume your director’s loan account (DLA) is £80,000 in credit, and you use this as a profit extraction tool by charging the company interest each year. You are moving house and want to borrow £100,000 whilst your property is awaiting sale. You could credit the amount to your DLA, meaning the loan balance would only be £20,000, but you will lose your profit extraction opportunity. A better option would be to use our Election to Aggregate Loans. This will mean that, for tax purposes, the loan and the DLA will offset one another so the tax charge will be based on the £20,000.

Procedure

You must make the election by the deadline for reporting the P11D benefit, i.e. by 6 July following the end of the tax year.