Free Director's Loan Agreement Template
Formalise a loan between a director and their company with a professionally drafted agreement covering loan amount, interest rate, repayment terms, and Companies Act 2006 compliance.
The board of directors approved this loan by resolution dated 1 March 2026.
"Borrower" means James Alexander Mitchell.
"Lender" means Sterling Technologies Ltd.
"Loan" means the principal sum of £25,000.00 advanced by the Lender to the Borrower under this Agreement.
"Loan Date" means 2026-03-15.
"Repayment Date" means 2027-03-15.
"Companies Act" means the Companies Act 2006.
"CTA 2010" means the Corporation Tax Act 2010.
"ITEPA 2003" means the Income Tax (Earnings and Pensions) Act 2003.
Purpose: The Loan shall be used for the following purpose: Deposit for residential property purchase. The Borrower shall not use the Loan for any other purpose without the prior written consent of the Lender.
Interest shall accrue from the Loan Date and shall be payable on the Repayment Date together with the principal.
In the event of late payment, interest shall continue to accrue on any overdue amount at the rate specified above plus 4% per annum until payment is received in full.
If the Borrower fails to make payment on the due date, the Lender may demand immediate repayment of the entire outstanding balance.
The Director agrees to use reasonable endeavours to repay the Loan within nine months of the Company's accounting reference date in order to avoid the imposition of s.455 tax.
Beneficial Loan Interest: The parties acknowledge that if the Loan is interest-free or carries interest below the HMRC official rate (currently 2.25% per annum), the difference between the interest charged and the interest at the HMRC official rate constitutes a taxable benefit in kind under ITEPA 2003 and the Income Tax (Benefits and Expenses) Regulations.
P11D Reporting: The Company shall report the benefit of the Loan on the Director's P11D form for each tax year in which the Loan is outstanding. The Company shall be liable to pay Class 1A National Insurance contributions on the reported benefit.
Shareholder Approval (ss.197-200 CA 2006): The parties confirm that the Company's members have approved this loan by ordinary resolution, as required under section 197 of the Companies Act 2006 (loans to directors exceeding £10,000) and, where applicable, section 200 (loans to persons connected with directors, threshold £50,000). A memorandum setting out the matters listed in section 197(4) has been made available to members at the Company's registered office for the prescribed period (or, in the case of a written resolution, sent with the resolution). A copy of the resolution is retained in the Company's statutory records. The parties acknowledge the civil consequences of contravention under section 213 CA 2006 (transaction voidable; directors liable to account and indemnify) and the criminal penalty under section 197(2) where applicable.
Board Resolution: The board of directors has passed a resolution authorising the entry into this Agreement, dated 1 March 2026.
Jurisdiction: Each party irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction to settle any dispute or claim arising out of or in connection with this Agreement.
Entire Agreement: This Agreement constitutes the entire agreement between the parties and supersedes and extinguishes all previous agreements, promises, representations, warranties, and understandings between them, whether written or oral, relating to its subject matter.
Variation: No variation of this Agreement shall be effective unless it is in writing and signed by both parties.
Confidentiality: Each party shall keep the terms of this Agreement confidential and shall not disclose them to any third party (other than their professional advisers, or as required by law, regulation, or any governmental or regulatory authority) without the prior written consent of the other party.
Notices: Any notice under this Agreement shall be in writing and shall be delivered personally, sent by pre-paid first-class post, or sent by email to the address of the relevant party set out in this Agreement or such other address as that party may notify in writing.
Severability: If any provision of this Agreement is held to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected.
Third-Party Rights: This Agreement does not confer any rights on any person or party (other than the parties to this Agreement and, where applicable, their successors and permitted assigns) pursuant to the Contracts (Rights of Third Parties) Act 1999.
Insolvency and Preferences: The parties acknowledge the potential application of sections 238-239 of the Insolvency Act 1986 (transactions at an undervalue and preferences) and the associated two-year look-back period for connected-person transactions under section 240(1)(a), and confirm that this Agreement is entered into in good faith on arm's-length terms for the benefit of the Company.
Limitation: The Lender acknowledges the limitation periods in the Limitation Act 1980 — six years for simple contract actions (section 5) and twelve years where the Agreement is executed as a deed (section 8).
What Is a Director's Loan Agreement?
A director's loan agreement is a formal contract documenting a loan between a company and one of its directors. The loan may flow in either direction: the company may lend money to the director, or the director may lend money to the company. The agreement sets out the principal amount, interest rate, repayment schedule, and the terms and conditions governing the loan.
In England and Wales, loans between a company and its directors are subject to specific provisions of the Companies Act 2006, particularly sections 197 to 214, which require shareholder approval for certain loans to directors. HMRC also has specific rules regarding the tax treatment of director's loans, including section 455 Corporation Tax Act 2010 charges on outstanding loans.
A well-drafted UK director's loan agreement is essential for demonstrating that the loan is a genuine commercial arrangement, protecting both the British director and the company, maintaining clean accounting records, and ensuring compliance with UK Companies Act requirements and HMRC tax obligations in England and Wales.
What's Covered in This Template
This director's loan agreement template covers all essential provisions for a compliant loan arrangement between a company and its director.
Parties and Relationship
Details of the company and director, confirmation of the director's position, and the direction of the loan.
Loan Amount
The principal sum being lent, any drawdown provisions, and the currency of the loan.
Interest Rate
The applicable interest rate, whether the loan is interest-free, and interest calculation methodology.
Repayment Terms
Repayment schedule (lump sum, instalments, or on demand), repayment dates, and prepayment rights.
Purpose of Loan
The stated purpose for which the loan funds will be used, if applicable.
Security
Any security or guarantee provided for the loan, such as a personal guarantee or charge over assets.
Shareholder Approval
Confirmation that any required shareholder approval has been obtained under sections 197-200 of the Companies Act 2006.
Tax Provisions
Acknowledgement of tax implications including section 455 CTA 2010 and benefit in kind charges.
Events of Default
Circumstances triggering immediate repayment, such as the director ceasing to hold office or company insolvency.
General Provisions
Governing law, notices, entire agreement, and amendment provisions.
How to Create a Director's Loan Agreement
Our template guides you through creating a comprehensive director's loan agreement that meets Companies Act 2006 requirements.
- 1
Identify the Parties and Loan Direction
Enter the company details (name, registered number, registered office) and the director's details. Specify whether the company is lending to the director or the director is lending to the company.
- 2
Set the Loan Terms
Specify the principal amount, the interest rate (or confirm the loan is interest-free), and the repayment schedule. Include any provisions for drawdown in tranches if the full amount is not advanced at once.
- 3
Address Shareholder Approval
If the UK company is lending to the British director, check whether shareholder approval is required under sections 197 to 200 of the UK Companies Act 2006. Record the resolution approving the loan and the date it was passed in England and Wales.
- 4
Include Tax and Default Provisions
Acknowledge the UK tax implications of the loan, including any section 455 CTA 2010 charge and benefit in kind implications under HMRC rules. Define the events of default that trigger immediate repayment under British law.
- 5
Review and Execute
Review the complete agreement, ensure all required shareholder approvals have been obtained, and have the agreement signed by both the company (acting through an authorised signatory other than the borrowing director) and the director.
Legal Considerations
Director's loans are subject to specific provisions of the Companies Act 2006 and have important tax implications under HMRC rules.
This template is for informational purposes only and does not constitute legal advice. Consult a qualified solicitor for advice specific to your situation.
Reviewed for England & Wales law
Companies Act 2006 — Shareholder Approval
Sections 197 to 200 of the UK Companies Act 2006 require shareholder approval for loans from a British company to its directors (or connected persons) that exceed specified thresholds. For private companies in England and Wales, the threshold is the higher of £10,000 or 10% of the company's net assets. Loans made without the required approval are voidable at the British company's option, and the director may be liable to account for any gain and indemnify the company against any loss under English law.
Section 455 Corporation Tax Act 2010
Where a UK close company makes a loan to a participator (which includes a British director who is a shareholder), a section 455 tax charge of 33.75% of the outstanding loan amount may arise if the loan is not repaid within nine months of the end of the accounting period. The HMRC tax is repaid when the loan is repaid, but this creates a significant cash flow cost for the British company in England and Wales.
Benefit in Kind
If a UK company lends money to a British director at below the HMRC official rate of interest, the difference between the interest charged and the official rate is treated as a benefit in kind under HMRC rules. This must be reported on the director's P11D and is subject to income tax and Class 1A National Insurance contributions in England and Wales. Loans of £10,000 or less are exempt from the benefit in kind charge.
Director's Duties
British directors have a duty under section 172 of the UK Companies Act 2006 to act in the way they consider most likely to promote the success of the company. A UK director proposing to borrow from the company should ensure the loan is in the company's interests and should declare their interest under section 177. Other British directors should satisfy themselves that the loan is appropriate before approving it in England and Wales.
Frequently Asked Questions
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