The new 32.5% rate on dividends received by higher rate taxpayers means paying interest on directors’ loan account credit balances is now more tax efficient than paying dividends, once the new £5,000 dividend allowance has been used.
Unlike bank interest the company is still required to deduct 20% basic rate income tax and pay this over to HMRC quarterly with from CT61. Remember that higher rate taxpayers can receive £500 interest income tax free from 6 April 2016.