Blog Search

Archives

FRS 102 guidance on directors’ loans revised

HMRC have recently updated their online toolkit on directors’ loan accounts to help tax advisers and agents preparing 2015/16 company tax returns. The update reflects the changes to reporting requirements under UK GAAP, as taxing debt will now be largely driven by FRS 102 requirements for financial instruments.

If an entity makes loans to/from directors/employees where there is no explicit interest rate or the interest rate charged is not at a market rate, then the prescribed accounting treatment will depend on which accounting framework the entity has adopted.

Where an entity applies either FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland or FRS 102: Section 1A Small Entities, then such loans are required to be accounted for as if they were a loan with a market rate of interest. Where a company applies FRS 105: The Financial Reporting Standard applicable to the Micro-entities Regime (FRS 105), there is no requirement to account for such loans as if they were a loan with a market rate of interest. Instead such loans would initially be recorded at the amount borrowed/advanced.

The choice of accounting treatment does not affect the amount chargeable under Corporation Tax Act 2010, Section 455. That is charged on the full amount initially borrowed/advanced. Without this piece of anti-avoidance legislation, owner managers could potentially avoid a tax charge by arranging for ‘their’ company to lend them funds (as opposed to paying a ‘taxable’ bonus or dividend).

  • Latest news and testimonials

  • Latest News

    • September Q&A

      Q. I have two small businesses which are treated as a group for VAT purposes, so we only submit a single VAT return covering both …

      Read more
    • Making Tax Digital for Business: update

      In July, the Government confirmed that the Summer Finance Bill would be published in September, with the measures dropped from the pre-election Finance Bill being reintroduced …

      Read more
  • Testimonials

    • Partner – Solicitor

      I have worked with SBL over the last 10 years on numerous matters involving owner-managed business. They are professional, personable, knowledgeable and work incredibly hard to provide the best advice to their clients. I would have no hesitation in recommending SBL.

      Read more
  • Don’t hesitate to ask

    SBL are here to help. With accountancy advice and tax planning experts on hand to guide you and your business on the pathway to success! You can call us on 020 7580 6822, or email us on info@sblaccoutants.com or if you’d prefer you can complete our Free Online Enquiry Form and one of the team will be in touch shortly.

    Don’t hesitate to ask

    Don’t hesitate to ask section
    • This field is for validation purposes and should be left unchanged.

    By submitting my details on this form, I consent to being contacted by a member of the SBL Accountants team by email or telephone. Privacy Policy