Director's Loan Account Ireland: Rules, Records and Tax Risks

When the company owes the director

A founder may pay incorporation costs, software or a supplier personally, or transfer working capital to the company. If the expense belongs to the company and the documentation supports it, the amount may be credited to the director's loan account rather than treated as salary or share capital.

Keep receipts, the business purpose, payment date and any board approval. Decide whether funds are a repayable loan or permanent equity before describing them. Interest on a director's loan has its own tax and withholding considerations, and excessive interest paid by a close company to a materially interested director or associate may be treated as a distribution.

When the director owes the company

Personal withdrawals, private expenses paid by the company or an advance without payroll or dividend treatment can create an overdrawn loan account. Most owner-managed Irish companies are close companies, so the special participator-loan rules need immediate review.

Revenue states that loans or advances by a close company to participators or associates must generally be made under deduction of tax. The company accounts for Income Tax at the standard rate on the grossed-up amount through its Corporation Tax return, and that tax is not deductible for CT purposes.

• Identify the borrower and any connected associate.
• Confirm whether the company is a close company.
• Record the date and commercial terms of the advance.
• Calculate any Section 438 company tax charge.
• Review payroll, benefit, dividend and company-law consequences.

The limited employee exclusion

Revenue lists an exclusion where the total loan does not exceed €19,050, the borrower is a full-time employee or director of the company or an associated company, and the borrower does not have a material interest. Revenue describes a material interest for this purpose as beneficial ownership or control of more than 5% of the ordinary shares.

Many founder-directors exceed that ownership threshold, so the exclusion often does not help them. Do not assume a small balance is automatically exempt, and aggregate connected loans where the legislation requires it.

Repayment and write-off are not equivalent

If the loan is repaid, the company can claim a refund of the relevant Income Tax, subject to Revenue's claim rules and time limit. A repayment should be real and documented. Revenue guidance warns against arrangements that repay and quickly redraw funds merely to obtain a tax result.

If a loan is released or written off, Revenue treats the grossed-up amount as income of the borrower and limits the available tax credit. Before declaring a dividend, bonus or other amount to clear the account, confirm distributable reserves, PAYE, withholding and personal-tax consequences.

Monthly controls prevent expensive surprises

Use separate company banking and cards. Post director-paid expenses promptly, classify withdrawals before month-end and send the loan-account ledger to the accountant regularly. The balance in bookkeeping should reconcile to the signed accounts and any disclosure.

Seek advice before a director borrows, before charging interest and before year-end cleanup. A journal entry cannot turn a private withdrawal into a valid business expense, and a late reclassification may create additional company and personal liabilities.