Sometimes a company stands behind a director's personal borrowing — a bank may ask for a company guarantee before lending to the director. Because the company could end up paying, the law requires the accounts to say so. This note covers that disclosure.
What this note shows
Companies Act 2006 s413 requires the notes to disclose guarantees of any kind entered into by the company on behalf of its directors. For each guarantee the accounts state its main terms, the maximum liability the company may incur, and any amount paid or liability incurred by the company under it. Like loans to directors, this disclosure is required for small companies, so it appears in FRS 102 Section 1A accounts (and, in FRS 105 accounts, in the advances, credits and guarantees note — see Advances, credits and guarantees to directors (FRS 105)).
Which guarantees belong here
Only guarantees the company gives for a director's obligations. It is common for a director to personally guarantee the company's bank loan or overdraft. That is the reverse: the director is supporting the company, the company has not taken on any risk for the director, and it is not a s413 guarantee. If you want to mention a director's personal guarantee of company borrowing, put it in the related party transactions note or alongside the security details for the loan in the creditors notes.
If the company has not given any guarantees for its directors, leave this note switched off.
Where the figures come from
Nothing in this note comes from the trial balance — a guarantee is not normally a liability on the balance sheet unless the company expects to have to pay. Every guarantee is entered in the note:
| Column | What to enter |
|---|---|
| Director | Chosen from the period's directors. |
| Terms | What is guaranteed and when the company would have to pay, for example “Guarantee of the director's personal overdraft, callable only if it is not repaid on demand”. |
| Maximum liability under guarantees | The most the company could be asked to pay. |
| Amount paid and liability incurred | What the company has actually paid, or become liable to pay, under the guarantee. Often nil. |
Completing the note in Tax Optimiser
- Open the period, choose View Accounts, then Notes.
- Select Guarantees provided on behalf of directors and set Show this note in the accounts to Yes.
- Click Add Guarantee, choose the director, then enter the terms, the maximum liability and the amount paid. Repeat for each guarantee. The bin icon removes a row.
- If you want to add a written explanation, select the second section, General Description of Guarantees of Terms, switch it on and type the wording.
- Click Save changes.
The table section prints only the rows you enter. Wording you want printed as a sentence must be in the General Description of Guarantees of Terms section, which prints underneath.
Wording templates
Use Template on this note lists two pieces of wording. Copy the one that fits into the General Description of Guarantees of Terms section if you want a sentence as well as the table. The director's name is filled in automatically.
- Guarantee on behalf of a director — the company has guaranteed a director's personal obligations. Asks for {{GuaranteeAmount}} and {{GuaranteeTerms}}.
- Personal guarantee by director — a director has personally guaranteed the company's bank borrowings. Asks for {{GuaranteeAmount}}. As explained above, this is not a s413 guarantee by the company; it is usually better placed in the related party transactions or creditors notes.
How it appears in the accounts
The note prints each director's name, then the terms with the maximum liability and the amount paid, with a total row. A nil amount paid shows as a dash.
Frequently asked questions
Does a director's personal guarantee of the company's bank loan need to go in this note?
No. This note is for guarantees the company gives for a director. A director guaranteeing the company's debts is the other way round. You can mention it in the related party transactions note or with the bank loan details.
What should I put as the maximum liability?
The most the company could have to pay under the guarantee — usually the guaranteed facility limit, or the cap stated in the guarantee document.
Does a guarantee for a director go on the balance sheet?
Normally not. It is disclosed in this note. If it has become likely that the company will have to pay, a liability or provision may be needed as well; record it in the trial balance and show the amount in the “amount paid and liability incurred” column.
Is this disclosure needed in micro-entity accounts?
Yes. In FRS 105 accounts it is part of the advances, credits and guarantees note printed under the balance sheet.