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The Accountants for Growth

Director Loans - Accounting Relief

Director Loans - Accounting Relief
Loans from directors to their company are a significant source of finance for many owner-managed small companies. Often, these loans are interest-free. 
FRS102 requires such loans to be valued at the present value of the future payments, discounted at a market rate of interest. This accounting treatment is unnecessarily complicated and of little value for SMEs. 
 
So, in May 2017, interim relief was granted to small entities allowing them to measure a loan from a director (or family member of that director) at face value provided that the loan qualifies as ‘basic’ and the director is also a shareholder. 
 
The relief has now been extended so that the director no longer has to be a shareholder so long as the director’s group of close family members contains at least one shareholder in the company. 
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