Can you use your company to get a loan?

[d000hg]

Two questions here really...

1)Can my company issue a loan to me as a director?
2)If yes, is it a remotely feasible option to have your company borrow money and then issue a loan to you?

It sounds like the kind of fishy deal that should be prevented might not be...

[Olly]

yes u can borrow from company but you have to pay interest (over 5K) - I believe it was 6.5% , don't know what it is now. There is no doubt more to the story too...
why is it fishy? you can mis-manage your company's assets as you see fit.........

[Little'Old Me]

Two questions here really...

1)Can my company issue a loan to me as a director?
2)If yes, is it a remotely feasible option to have your company borrow money and then issue a loan to you?

It sounds like the kind of fishy deal that should be prevented might not be...

I'll keep the jargon to the minimum so:

Yes you can take a loan from the company - but if its over £5000 you have to pay interest (at a rate no lower than the amount the HMRC fix) on it and put the details on a P11d.

The company has to declare the loan on it tax return (additional form) and pays an extra "withholding" tax at 25%. If you repay 100% of the loan within 9 months of the year end you don't have to pay the tax. They return or increase the 25% extra tax based on the amount outstanding each year in your accounts. (This is to stop directors borrowing the money, repaying it, and then borrowing it back)!

[thunderlizard]

Yes and yes (assuming you can find a willing lender). But if you did that and your company went bust, that would probably count as criminal recklessness.

[d000hg]

Hmm, at the rates discussed it doesn't sound a particularly great idea. I was thinking of ways to get a larger deposit to buy a house, since bigger deposit --> lower interest rate. I wondered if I could counteract the stigma of being self-employed by getting a bigger deposit, but if we're talking 6.5% then it's hardly helpful as well as a bit dodgy

[Little'Old Me]

Yes and yes (assuming you can find a willing lender). But if you did that and your company went bust, that would probably count as criminal recklessness.

I hate to say it - but this happens all the time.... This is why the HMRC take the extra 25% tax! That way if the director never repays the loan at least they are happy they don't have to repay the Company the extra 25%.

If the company goes bust, the director is asked to repay the loan. But due to the costs involved in doing this the reality is Directors often get away with it......(If the company does not go bust, it can write off the loan, which is perfectly legal as long as the company is prepared to forgo the extra 25% tax paid)....... (The company ends up paying 21% + 25% = 46% paid - so now you understand why the HMRC don't care!)

But in recent years there have been the odd case of a director banned (very rare, but it has happened) - but it is actually very difficult to prove and very expensive to do - hence why it is still rare!

Keep doing this, and eventually you would "run out of business friends" and people would start refusing to deal with you...... (HMRC would refuse to register you for VAT, no concessions for late payments of tax..... etc.etc..)

[Archangel]

Hmm, at the rates discussed it doesn't sound a particularly great idea. I was thinking of ways to get a larger deposit to buy a house, since bigger deposit --> lower interest rate. I wondered if I could counteract the stigma of being self-employed by getting a bigger deposit, but if we're talking 6.5% then it's hardly helpful as well as a bit dodgy

But the interest comes back into the company as profit. So you only actually pay 6.5% * your highest tax rate (so for a higher rate taxpayer it is actually 2.6%) the rest can be paid out as a divvie.

[d000hg]

But the interest comes back into the company as profit. So you only actually pay 6.5% * your highest tax rate (so for a higher rate taxpayer it is actually 2.6%) the rest can be paid out as a divvie.

Oh, I totally misunderstood that; so the deal is my company is forced to charge ME a minimum level of interest but it is simply a business deal... my company makes a profit from the loan and then pays tax on this profit?

Now the problem would be HOW to get a business loan... I don't think approaching a bank with the line "my company wants to borrow £25k so I can get a cheap personal loan" is going to fly. I'm going to start another thread on the topic of getting business loans though, interesting in it's own right...

[Olly]

But the interest comes back into the company as profit. So you only actually pay 6.5% * your highest tax rate (so for a higher rate taxpayer it is actually 2.6%) the rest can be paid out as a divvie.

The interest comes back in as turnover which is then taxed at 21% corporation tax (pot of expenses withstanding)....how you as an individual are taxed when the money leaves the company depends on your salary /dividend structure and volume.

get it right (I hope I just did!)

[kknandoo]

Oh, I totally misunderstood that; so the deal is my company is forced to charge ME a minimum level of interest but it is simply a business deal... my company makes a profit from the loan and then pays tax on this profit?

Now the problem would be HOW to get a business loan... I don't think approaching a bank with the line "my company wants to borrow £25k so I can get a cheap personal loan" is going to fly. I'm going to start another thread on the topic of getting business loans though, interesting in it's own right...

Hi Ya,

This is my first post and am in exact dillema as you were. Did you get to the bottom of it. If so can you please how did you approach on this issue?

Many Thanks
Mahesh