Directors’ Loan Interest Rate 2025/26 Explained

There is no single directors’ loan interest rate for the 2025/26 tax year: the rate depends on the loan’s terms and the tax rules that apply. This page calculates the annual interest on a director’s loan from the balance and an entered rate; it does not determine a legally required or tax-approved rate.

Formula

The calculator uses simple interest, prorated by the number of days entered:

• Interest for period = balance × (annual rate ÷ 100) × days ÷ 365.
• Annual interest = balance × annual rate ÷ 100.

Balance is the amount lent, in dollars for this calculator; annual rate is the rate entered as a percentage per year; and days is the length of the period. The 365-day convention is an arithmetic assumption, not a rule that every company or tax authority must use. Enter the rate as a number such as 5 for 5%, not 0.05.

Worked Example

Using the defaults—$10,000, 5% per year and 365 days:

1. Convert the percentage to a decimal: 5 ÷ 100 = 0.05.
2. Multiply by the balance: $10,000 × 0.05 = $500 for a full year.
3. Prorate for 365 days: $500 × 365 ÷ 365 = $500.00 interest for the period.

The annual-interest output is also $500.00. If the same loan were outstanding for 180 days under the same assumptions, the period result would be $10,000 × 0.05 × 180 ÷ 365 = $246.58 after rounding to cents.

What “directors’ loan interest rate” means

A director may lend money to a company, or borrow money from it. These are different arrangements, and the phrase “directors’ loan interest rate” can refer to either the rate written into a loan agreement or, in some tax discussions, a reference rate used to calculate a tax-related benefit. The calculator above handles only the arithmetic for interest on a balance at a rate supplied by the user.

It does not establish what rate should be charged, whether interest is required, or how a particular transaction must be reported. Those questions can turn on jurisdiction, the direction of the loan, the agreement, dates, changes in balance, and the parties’ circumstances. The label “2025/26” does not create one universal rate applicable to every director or company.

How to use the calculator

• Enter the principal or balance to which the rate applies. If the balance changed during the period, calculate separate intervals or use a properly weighted balance rather than treating the whole period as constant.
• Enter the annual percentage rate specified for the calculation. Confirm whether the document states a yearly rate, monthly rate, or another basis before converting it.
• Enter the number of days the balance was outstanding. A zero-day period gives zero interest; the calculator allows periods up to 100 years for arithmetic flexibility.
• Read the period-interest result first. The annual figure is a comparison for a full 365-day year at the same balance and rate.

This simple calculation assumes the balance stays unchanged and interest is not added to the balance. If the director makes repayments or additional advances, divide the timeline into periods with separate balances and day counts, then add the calculated interest. If interest compounds, a simple-interest result will not match a compounding calculation.

What rate should be entered for 2025/26?

Use the rate that applies to the specific question you are trying to answer—not an assumed universal “directors’ loan rate.” For contractual interest, check the signed agreement and any later changes. For a tax calculation, identify the relevant jurisdiction and the precise rule and period, then verify the applicable published figure with an authoritative source or a qualified tax professional. Rates and rules can change, and a tax reference rate is not automatically the commercial rate a company and director agreed.

Also distinguish a tax reference rate from the actual interest charged. A company could have a written rate that differs from a figure used for a tax computation; the consequences depend on applicable rules and facts. This page does not supply or verify 2025/26 tax rates, and its default 5% is only a neutral example for demonstrating the formula.

Common calculation problems

• Mixing up the direction of the loan: a director lending to a company is not the same transaction as a company lending to a director. Identify who owes whom before choosing the relevant calculation or seeking tax guidance.
• Using the wrong percentage format: enter 5 for 5%, not 0.05. The calculator divides the entered value by 100.
• Ignoring balance changes: applying one year-end balance to a period with repayments or advances can distort the result. Calculate each balance interval separately.
• Assuming interest compounds: the formula is simple interest. It does not calculate interest on previously accrued interest.
• Treating the result as tax due: the output is an arithmetic interest estimate, not a tax return figure or a conclusion about reporting obligations.

Frequently Asked Questions

What is the directors’ loan interest rate for 2025/26?
There is no one rate that applies to every directors’ loan. The relevant figure depends on whether you mean the agreement’s interest rate or a rate used for a particular tax calculation, as well as the jurisdiction and facts.

Is the 5% calculator rate the official rate?
No. Five percent is an example default that makes the arithmetic visible. Replace it with the rate relevant to your agreement or verified calculation.

How do I calculate interest on a director’s loan?
For simple interest, multiply the balance by the annual percentage rate divided by 100, then multiply by the days outstanding and divide by 365. This calculator uses that convention and rounds the displayed result to cents.

Does this calculate tax on a director’s loan?
No. It calculates interest only. It does not apply tax rules, determine a taxable benefit, or decide what needs to be reported.

What if the loan balance changed during the year?
Calculate interest separately for each interval with a constant balance and rate, using that interval’s day count, then add the results. For complex records, get the balance and treatment checked by an appropriate professional.

This result is an educational estimate; the applicable agreement and authoritative disclosures or guidance determine the exact figures and treatment.

Related

• Loan Refinance vs. Consolidation: Key Differences
• Loan Refinance Savings Calculator: Compare Costs
• Loan Refinance Rules: What Changes and What to Check

in bal | Loan balance | $ | 10000 | 0 | 100000000
in rate | Annual interest rate | % | 5 | 0.01 | 100
in days | Days outstanding | days | 365 | 0 | 36500
out int | Interest for period | $ | bal * (rate / 100) * days / 365 | 2
out ann | Annual interest at entered rate | $ | bal * rate / 100 | 2