The note on advances, credits and guarantees to directors

What the note covers

In a company that does not prepare group accounts, details of advances and credits granted by the company to its directors, and guarantees of any kind it entered into on their behalf, must be shown in the notes to its individual accounts (section 413(1)).

The directors are the people who were directors at any time in the financial year (section 413(6)). The note covers every advance, credit or guarantee that existed at any time in the year, whenever it was entered into and whether or not the person was a director when it was (section 413(7)).

Parent companies

A parent company that prepares group accounts shows in the notes to the group accounts the advances, credits and guarantees given to the parent company's directors by the parent and by its subsidiary undertakings (section 413(2)).

Details of each advance or credit

• Its amount (section 413(3)).
• An indication of the interest rate.
• Its main conditions.
• Any amounts repaid.
• Any amounts written off.
• Any amounts waived.

Details of each guarantee

• Its main terms (section 413(4)).
• The maximum liability the company, or its subsidiary, may incur.
• Any amount paid and any liability incurred to fulfil the guarantee.

Totals

The notes also give totals of the amounts advanced, the amounts repaid, the amounts written off and the amounts waived, and of the maximum guarantee liabilities and the amounts paid or incurred under guarantees (section 413(5)). Banking companies and holding companies of credit institutions give only the totals of amounts advanced and of maximum guarantee liability (section 413(8)).

Micro-entity accounts

A micro-entity gives no notes in the ordinary sense, but the section 413 details still apply. They go at the foot of the balance sheet, with the paragraph 57 information on commitments and guarantees (section 472(1A)). See statutory accounts contents.

A worked example

For example, a director's loan account starts the year with £2,000 owed to the company. In the year the company advances £14,000 to the director, interest-free and repayable on demand, and the director repays £9,000. Nothing is written off or waived. Following section 413(3), the note gives the amount, states that no interest is charged, gives the main conditions (repayable on demand), and states the £9,000 repaid, with nil written off and nil waived. The balance owed at the year end is £7,000.

An advance of that size needed the members' approval by resolution (section 197), because the exception for loans and quasi-loans applies only where the total does not exceed £10,000 (section 207).

The director's loan account and section 455

The note is drawn from the director's loan account. See directors' loan accounts for keeping the account.

When a participator owes the company money at the end of the accounting period, the company may owe corporation tax under section 455 on the outstanding amount, shown on form CT600A (GOV.UK: if you owe your company money). The rate follows the dividend upper rate for the year the loan was made. The same page says a loan over £10,000 is treated as a benefit in kind. See close companies and s455.

Questions