Loans to Shareholders and Directors

Shareholders and directors frequently take money from their company without fulfilling their PAYE obligations. The bookkeeper will charge these amounts to their loan accounts, leading to a gradual increase in the total owed, often reaching considerable figures.

In the event that you owe money to your firm, it is mandated that you incur interest at a minimum rate that corresponds to the official rate, currently set at 1% above the Repo Rate.

This interest merely requires a notation in the accounting records—debiting the Loan Account and crediting the Interest Received, with a recommendation for monthly entries. To enhance efficiency, the bookkeeper might be advised to impose interest on the year-end balance according to the official rate applicable at the conclusion of the year. This may not reflect complete accuracy; however, it is anticipated to be enough to exceed the legitimate total.

Interest income is included in the taxable earnings of the organization and is generally not classified as a tax-deductible expenditure for the borrower.

Any discrepancy between the interest that ought to have been levied and the interest that was actually applied is considered a dividend, which is liable to a 20% Dividends Withholding Tax. The omission of dividend declaration can lead to a penalty of 200%, compounded by interest on the estimated dividend and the corresponding fine.