Illegal shareholder loans and shareholder accounts — avoid the tax trap

Have you withdrawn money from your company that was not salary, dividends or reimbursement of expenses? You may have taken out an illegal shareholder loan.

What counts as a shareholder loan?

• Personal expenses paid by the company.
• Transfers from the company to your personal bank account.
• A negative balance on the shareholder account, where you owe the company money.

The consequences

Loans from the company to its controlling shareholder are taxed as salary (or dividends, if you are employed by the company) — even if the amount is later repaid. The repayment is treated as a new contribution to the company and is not tax-deductible.

How to avoid it

1. Keep personal and business finances completely separate.
2. Pay yourself a salary or dividends instead of taking out "loans".
3. Reconcile your shareholder account regularly — not just at the end of the year.
4. Keep receipts or other supporting documents for all expenses paid out of pocket.

Foreign companies

Similar rules apply in the UK — see director's loan account. You can also read about how to withdraw money from a foreign company.

Frequently asked questions

Can I just repay the amount?

Repaying it does not remove the tax liability — the loan is still taxable.

What if it was a mistake?

Correcting the mistake promptly may help in some cases; seek advice immediately.

Does this also apply to a positive shareholder account balance?

No. If the company owes you money, it is not a shareholder loan.

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