Interest on money lent to company

[makingtime]

Hello

I have a query about interest on money lent to my company by me, the director.

Background: I have limited company through which I provided consultancy services until March 2020. Work dried up at the beginning of Covid (prior to which the company ticked over with around £60k turnover).

The company had purchased a property just prior to the end of the tax year as a base for the company and to generate rental income. A six month contract which had just begun at that point was brought to an end when the lockdown started and the company was subsequently not in a position to pay its VAT and CT.

Between March 2020 and April 2022 (when the company sold the property mentioned above) I lent the company money to cover its liabilities to HMRC and for the upgrade/maintenance of the property. I did not draw down any salary. At the point the property sold in April 2022, the company owed me £25k, around £15k of this was money that I had borrowed personally at silly interest rates.

The sale of the property will enable the company to clear the debt that it had incurred to me as director (and all its other liabilities).

My questions are:

- am I able to pass on the cost of the personal loans which enabled me to lend money to the company?
- Are there any limits to the interest rate I can charge, and
- would I have to declare any payment and deduct tax at source?
- does this qualify as a legitimate business expense?

The company does not have an accoutant as it was not able to carry the monthly cost through Covid. My intention is to submit a tax return and then dissolve the company.

With thanks in advance.

[northernladuk]

What a mess. Firstly what happened around paying yourself divis when the company couldn't pay it's CT and VAT? If you did pay them without retained profit they will be illegal and you need to repay those and sort that out.

- am I able to pass on the cost of the personal loans which enabled me to lend money to the company?

No. It's a personal loan. It's in the title.

- Are there any limits to the interest rate I can charge,

Yes, if it's ridiculous and is there for no other business reason than to fleece the LTD them HMRC will be very interested. To be safe you need to charge a reasonable rate that is available if the company had borrowed it from somewhere else. Looks like the average is between 2.54 and 7.02%. Much above this and you'll be attracting attention.
https://www.nerdwallet.com/article/s...oan-rates-fees

- would I have to declare any payment and deduct tax at source?

https://www.gov.uk/directors-loans/y...-company-money
It's business expense and personal income so taxable

- does this qualify as a legitimate business expense?

The interest does yes but is sub 10% for 2 years on 25k really worth dicking about with? This isn't the money spinner you are probably hoping it is. You'll have to crunch the numbers and see

But above all, get an accountant. Trying to get yourself out of a complex mess which most of your peers haven't had dealings with is a very poor way out of a problem. Struggling with the concept of a personal loan is reason enough to go get one. A good accountant will save you more than they cost in situations like this.

[Lance]

I agree with NLUK. Get an accountant. It's either that or an administrator/liquidator (and that will cost).

There may be illegal dividends on the books.
There may be some opportunity to turn those dividends into salary and reduce the CT bill (not sure how possible this is with MTD).
You can charge the company interest on the director loan, but not simply pass on the cost.
VAT you are stuck with.
If you had CT to pay and then lost money, there is likely CT that can be reclaimed.
Sacking your accountant was a really bad idea IMO as they could have provided options.