What is a Directors Loan?

With the contracting sector continuing to thrive, it’s no surprise that many Independent Professionals are choosing to operate through their own Personal Limited Company — particularly after securing a contract renewal for the foreseeable future.

One area that regularly comes up in conversations with contractors is Director’s Loans. Unlike Umbrella Company solutions (where these don’t apply), they can be a feature of a Limited Company.

Our Managing Director, Gerard Kiernan, answers one of the most frequently asked questions we hear:

“My company has a lot of cash in it — can I give myself a loan?”

Like most tax and accountancy queries, the answer is both Yes and No. But in reality, for the majority of professional contractors, the practical answer is usually No.

Let’s break it down.

When the Director Loans Money to the Company

This is straightforward. If you put personal funds into your company (e.g. at start-up or to support growth), your company can repay you once cash flow allows. No additional tax issues arise here.

When the Company Loans Money to the Director

This is where things become more complex, as both Company Law and Revenue rules come into play.

Company Law

Under Section 239 of the Companies Act 2014, companies are generally prohibited from making loans to directors or connected persons.

There are limited exceptions, the most relevant being the 10% rule:

• A company may provide a loan if the total value of loans is less than 10% of its net assets (based on the latest financial statements).
• Example: If your company has net assets of €200,000, the maximum loan available under this exemption is €20,000.
• If net assets later fall below the threshold, directors must act to correct the position.

Non-compliance can result in serious penalties, including prosecution.

Taxation Rules & Revenue Guidelines

Even if legally permitted, the tax treatment often makes Director’s Loans unattractive. There are two types of tax you need to consider, Income Tax and Corporation Tax.

1. Income Tax

Company loans made to Directors will be liable to BIK, and Revenue considers them as a preferential loan for BIK purposes.

• BIK Rates (2025):
  • 4% for qualifying home loans
  • 13.5% for all other loans

The benefit is calculated as the difference between market interest and the rate paid, and it is taxed through payroll (PAYE, USC, PRSI).

Example:

• €20,000 home loan at 4% = €800 benefit.
• At a 52% tax rate, personal tax due = approx. €416.

If the loan is treated as a salary, it must be grossed up — meaning €4,800 net could re-gross to €10,000 gross, with around €5,200 in tax due.

2. Corporation Tax

A Director’s Loan must also be declared on the Corporation Tax return. This triggers a 25% tax charge on the loan amount.

Example:

• €20,000 loan = €5,000 additional Corporation Tax.
• If repaid within 4 years, this tax can be reclaimed.

The Reality for Contractors

For most contractors, an overdrawn Director’s Loan Account usually comes from using company funds for personal spending. However, this can quickly become costly, both in terms of legal risk and tax liability. What seems like a quick cash fix is often the most expensive way to access funds from your company.

Our Advice

• Keep company accounts strictly for business expenses.
• Reconcile monthly to spot issues early.
• Always seek advice from your accountant before considering a Director’s Loan.

Thinking about accessing company funds? If you are a contractor, be sure to reach out and speak to your Payroll Account Manager or Accountant before making any decision.