Lending money to your own company: interest, 20% tax and the CT61

In short: Yes. A company can pay interest on money its director lends it, and the interest is a business expense for the company and personal income for the director. The company must pay the interest less Income Tax at the basic rate of 20%, then report and pay that tax every quarter on form CT61 (GOV.UK: Director's loans). Taxley prepares and files the Company Tax Return (CT600) with the interest deducted, for £49.95 with micro-entity accounts, and files the accounts at Companies House once the return is paid and the accounts are finished. Taxley doesn't file the CT61.

Take the 30-second check to see whether Taxley fits your company, or estimate the tax saved with the Corporation Tax calculator.

Key facts (checked on 8 October 2026)

Can a company pay interest on a director's loan?

Yes. A director who lends money to their own company can charge interest, and GOV.UK says it counts as a business expense for the company and personal income for the director. The company pays no Corporation Tax on the loan itself, but the interest brings two duties: deducting Income Tax and filing a CT61.

The duties come from GOV.UK's guidance for directors who lend their company money: the company pays the interest less Income Tax at the basic rate, reports and pays that tax every quarter on form CT61, and the director reports the interest on a personal Self Assessment return (GOV.UK: Director's loans). Record every amount the director pays in and draws out in the director's loan account, because the balance the company owes goes on the balance sheet at the year end (GOV.UK: Director's loans overview). Set the rate with care. HMRC's manual says interest on securities above a reasonable commercial return can be treated as a distribution rather than interest, and only the excess is caught (HMRC manual CTM15500). Our guide to which way a director's loan account runs explains a balance the company owes you; the CT600A and s.455 tax apply only the other way round.

When must the company deduct Income Tax from the interest?

When it pays "yearly interest" arising in the UK to an individual, such as a director. The company deducts Income Tax on making the payment, at the basic rate for the tax year of payment: 20% in 2026 to 2027. Interest paid to another UK company or to a bank is normally paid gross.

The duty is in section 874 of the Income Tax Act 2007, which applies to yearly interest paid by a company (ITA 2007 s.874), and the basic rate for 2026 to 2027 is 20% (Finance Act 2026 s.2). From the 2027 to 2028 tax year the section refers to the savings basic rate instead (Finance Act 2026 Sch 1 para 29), and that rate is 22% for 2027 to 2028 (Finance Act 2026 s.5). HMRC's manual says that in practice tax is deducted mainly where a company pays interest to an individual or another non-corporate lender (HMRC manual SAIM9070). Payments to a UK resident company, such as a director's own holding company, are made gross when the payer reasonably believes the recipient qualifies (HMRC manual CTM35215).

What is the difference between yearly and short interest?

Yearly interest is interest on a loan the parties intend to last a year or more; short interest is on borrowing meant to last less than a year. No statute defines the terms. HMRC's manual says the intention of the parties decides it, and only yearly interest carries the duty to deduct Income Tax.

HMRC's manual traces the test to case law: a loan or debt for less than a year starts with a presumption of short interest, while interest on a loan meant to subsist for a year or more is likely to be yearly. In one case a loan repayable on demand still produced yearly interest because both parties treated it as permanent finance (HMRC manual SAIM9075). If a loan meant for under 12 months is rolled over into a second year, HMRC wants clear evidence that the original intention was a shorter term, and a payer unsure whether interest is short or yearly may play safe by deducting tax (HMRC manual SAIM9076).

What is a CT61 and when is it due?

Form CT61 is the company's return of the Income Tax it deducted from payments such as interest. Each return covers a return period of up to three months ending 31 March, 30 June, 30 September, 31 December or the accounting period end. The return and the tax are due within 14 days of the period ending.

HMRC sets out the return periods and the 14-day deadline in its manual (HMRC manual CTM35110) and says the tax is due when the return is due, without an assessment (HMRC manual CTM35120). You can't download the CT61: GOV.UK says to request the form online (GOV.UK: CT61). HMRC's notes on the form say a return is needed only for a period in which the company deducted tax, nil returns aren't required, and HMRC charges interest on tax paid late and may charge penalties for a late or incorrect return (HMRC: CT61 notes). Totals for the period are acceptable, but amounts paid before and from 6 April should be shown separately if the rate changes, and HMRC may ask for a reconciliation with the interest in the accounts (HMRC manual CTM35050). A company that finds a mistake must send an amended return without delay (HMRC manual CTM35130).

How does a £60,000 director's loan work out in practice?

Take a director who lends their company £60,000 at an illustrative 6% a year, with an accounting period from 1 April 2026 to 31 March 2027. The interest is £3,600. The company deducts £720, pays the director £2,880, files a CT61 and pays the £720 by 14 April 2027, and deducts £3,600 for Corporation Tax.

The working, with the interest paid in one sum on 31 March 2027 and the 6% chosen only to keep the sums simple, using the basic rate of 20% (GOV.UK: Director's loans) and the Corporation Tax rates of 19% and 25% (GOV.UK: Corporation Tax rates):

If the company pays the interest quarterly instead, each payment is £900 (£3,600 ÷ 4) and £180 is deducted from each (£900 × 20%), so the director receives £720 a quarter. HMRC's return periods for this accounting period are the four calendar quarters, each due 14 days after it ends (HMRC manual CTM35110):

The company's Corporation Tax relief is the same £3,600 either way. A quarterly payment of £900 made from 6 April 2027 would have £198 deducted at the 22% savings basic rate (£900 × 22%), under Finance Act 2026 s.5.

Does the company get Corporation Tax relief for the interest?

Yes, normally in full, under the loan relationship rules rather than as an ordinary expense. The interest recognised in the company's accounts is a debit for the period: a trading debit when the loan funds a trade, and a non-trading debit when it funds a property business. Relief normally follows the accounts, not the payment date.

The loan relationship rules start from the amounts recognised in the company's profit or loss under generally accepted accounting practice (CTA 2009 s.307). Debits on a loan relationship for the purposes of a trade are treated as expenses of the trade (CTA 2009 s.297). For a company letting property, HMRC's manual says interest is deductible under the loan relationship regime, so unlike for Income Tax it isn't an expense in computing the property profits (HMRC manual PIM2052). The same page describes the basic-rate restriction on finance costs as a rule for individual landlords paying Income Tax, so a property company keeps full relief. Corporation Tax is 19% on profits up to £50,000 and 25% above £250,000, with Marginal Relief in between (GOV.UK: Corporation Tax rates). Our guide to Corporation Tax for a property rental company shows the CT600 boxes for loan interest.

What happens if the company pays the interest late?

The deduction can be delayed. When a close company owes interest to a participator, such as a shareholding director, and doesn't pay it within 12 months after the end of the accounting period in which it accrued, the company gets relief only when it actually pays the interest.

The rule is in section 373 of the Corporation Tax Act 2009, with the close company and participator case in section 375 (CTA 2009 s.373; CTA 2009 s.375). HMRC's manual explains it as a counter to a mismatch: the borrower would otherwise get relief as interest accrues while a lender outside the loan relationship rules is taxed only on receipt (HMRC manual CFM35810). A lender with no shares or other rights in the company isn't a participator for this rule (HMRC manual CFM35870), but an associate of a participator, such as a shareholder's spouse, is still caught (HMRC manual CFM35880). In the worked example, interest accrued in the year to 31 March 2027 but still unpaid on 31 March 2028 would be relieved in the period the company pays it. Crediting the interest to the director's loan account counts as payment for this rule only if the company has the funds and the director can draw them unconditionally (HMRC manual CFM35830).

How is the director taxed on the interest?

The interest is the director's savings income, reported on their Self Assessment return. The 20% the company deducts is a sum representing Income Tax on the interest. How much tax the director finally owes depends on their other income, their tax band and allowances such as the Personal Savings Allowance.

GOV.UK says interest a director charges the company is personal income that must be reported on a Self Assessment return (GOV.UK: Director's loans), and the Income Tax Act 2007 describes the amount deducted as a sum representing Income Tax on the payment (ITA 2007 s.874). The Personal Savings Allowance is £1,000 for a basic-rate taxpayer, £500 for a higher-rate taxpayer and nothing for an additional-rate taxpayer, and the starting rate for savings can cover up to £5,000 of interest where other income is low (GOV.UK: Tax on savings interest). From 6 April 2027 the savings rates rise to 22%, 42% and 47% (Finance Act 2026 s.5). If the director asks in writing, the company must give a statement of the gross interest, the tax deducted and the amount paid (ITA 2007 s.975).

How does Taxley handle interest on a director's loan?

Taxley deducts the interest in the company's CT600 as the loan relationship rules require, once you enter it as interest payable in the profit and loss account. It doesn't file the CT61, pay the Income Tax the company deducted, or apply the 12-month late-paid interest rule, so those stay with you.

Taxley (taxley.co.uk), UK online software that prepares and files the Company Tax Return (CT600) with HMRC and the annual accounts with Companies House, has an "Interest payable" line in the profit and loss step of the Advanced editor; Simple mode asks for the loan interest paid under Specialist adjustments. For a property company it treats that interest as a non-trading loan relationship debit, so the rental profit is shown before interest and the interest is set against the company's total profits; the hint notes that the individual-landlord interest restriction doesn't apply. For a trading company the interest is deducted from the trading profit, and a company with both a trade and lettings can split out the interest on borrowings used in the trade. If you import a trial balance, an account named, for example, "loan interest" is suggested as interest payable, and you check it before it's applied.

Enter the gross interest the company accrued, not the net amount paid to the director, because the accounts carry the full expense. Taxley deducts the interest in the accounts as entered: if part of it falls under the late-paid interest rule, take advice before filing. It doesn't prepare or file the CT61, work out the tax to deduct or pay HMRC, and it isn't tax advice. The fee is £49.95 with micro-entity accounts or £139 with small-company accounts, which also covers filing the accounts at Companies House once the return is paid and the accounts are finished. Take the 30-second check to see whether Taxley fits your company, or see the price for your company.

Frequently asked questions

Does the company send a CT61 for a quarter with no interest paid?

No. HMRC's notes on the CT61 say a return is needed only for a return period in which the company deducted tax, and nil returns aren't required (HMRC: CT61 notes). An annual interest payment therefore means one CT61 a year.

Can I take the interest gross because I pay higher-rate tax anyway?

No. The company must deduct Income Tax at the basic rate on making the payment, whatever the director's own tax band (ITA 2007 s.874). The director then reports the interest on their own Self Assessment return (GOV.UK: Director's loans).

Does a loan from a director go on the CT600A?

No. The CT600A shows money a director or other participator owes the company at the end of the accounting period (GOV.UK: Director's loans). Money the company owes the director is a liability in its accounts. Our CT600A guide covers the other direction.

Can the company pay a director a high rate of interest to extract profit?

Not safely. HMRC's manual says the part of any interest on securities that exceeds a reasonable commercial return can be re-characterised as a distribution rather than interest (HMRC manual CTM15500). Choose a rate you could justify to an outside lender.

What if the director who lends the money lives outside the UK?

The company still deducts Income Tax from yearly interest (ITA 2007 s.874). HMRC's CT61 notes say a lower double taxation treaty rate needs an HMRC notice authorising it before the payment (HMRC: CT61 notes).

General information, not personalised tax or accounting advice.