Transfering personal debts to ltd company?

**SallyPlanIT** · 13 July 2010, 16:06

Hi Bexter and welcome

Whereas your personal debt cannot be transferred to your company, you could extract as much as you can from retained profit via dividends. Ensure you have enough in the bank to pay all your company dues, VAT, PAYE and CT. Another thing to consider is, taking dividends and putting your income into the higher tax brackets, consider whether the higher tax you would pay would be more or less than the interest you accrue on the debts.

Higher rate on tax on dividend income is 22.5% (40% on salary) for the first threshold raising to 32.5% (50% on salary) for the highest one.

The first threshold is income over £37,400 and the higher one income over £150,000.

**northernladuk** · 13 July 2010, 18:48

I don't want to be rude but surely the approach to get rid of a personal debt is to take a long serious look and think through your options. Transferring a debt to you LTD is not a thought through option. You are just effectively paying yourself that amount out of your company so its just a no brainer. You wouldn't want the director of a company you work for to do that on you would you? If you are going to get out of it (and possibly not in to it again) need to have a bit more of a basic grasp around your finances than this.

You could look at a directors loan but thats only 5k and for a very short period of time. It might also tempt you in to messing about with your company money which is a sure way to land yourself in a terrible situation.

Try searching the moneysupermarket forums for debt control or something like that.

**Bexter** · 13 July 2010, 20:47

Originally posted by northernladuk View Post

I don't want to be rude but surely the approach to get rid of a personal debt is to take a long serious look and think through your options.

Erm, thats the point, hence my first post where I said I'm just looking at options that are available.

I figure that a part of my 'dividends' go into paying off my debt, so why not transfer my debt to my ltd and let it pay them off, hence saving me money in tax before I even draw any dividends. I'm guessing there's rules against it, but I'm just wondering what they are!
I'm sorry but I don't understand your point -whats the difference between company money and your own money IF each month you pay yourself all your company money in dividends?

Should probably also point out that I'm not currently using ltd company (umbrella instead) and I'm still researching and investigating if its worth me doing this hence trying to get a 'basic grasp' of my finances. Plus its not a massive amount of debt, so its not like I need something like an IVA as suggested on the moneysavings forum, which I have read extensively.

**northernladuk** · 13 July 2010, 20:50

Originally posted by Bexter View Post

I'm sorry but I don't understand your point -whats the difference between company money and your own money IF each month you pay yourself all your company money in dividends?

Oh dear

**cojak** · 13 July 2010, 20:57

Oh dear indeed.

You owe HMRC Corporation Tax* on the company's income before you can take any amount out as dividends.

*at least, then there's VAT

**northernladuk** · 13 July 2010, 21:01

Originally posted by cojak View Post

Oh dear indeed.

You owe HMRC Corporation Tax* on the company's income before you can take any amount out as dividends.

*at least, then there's VAT

and the whole concept of giving yourself a lump sum of money from your company thinking you don't have to pay tax on it... and so on and so on.

**Bexter** · 13 July 2010, 21:05

Yep I understand that, so if my gross earnings into my ltd each month are 10k, I owe corp tax @ a rate of 30% right, i.e 3 (ignoring expenses).

However, if my debt is part of the company, with repayments of say £500 per month, then the way I see it is my taxable income is reduce to £9500. Therefore I figured it would be better to have them as part of the company.

Obviously though I am missing something, which is what I'm trying to understand. But I get the message, maybe this isn't the best place for my question.

**northernladuk** · 13 July 2010, 21:15

Originally posted by Bexter View Post

Yep I understand that, so if my gross earnings into my ltd each month are 10k, I owe corp tax @ a rate of 30% right, i.e 3 (ignoring expenses).

However, if my debt is part of the company, with repayments of say £500 per month, then the way I see it is my taxable income is reduce to £9500. Therefore I figured it would be better to have them as part of the company.

Obviously though I am missing something, which is what I'm trying to understand. But I get the message, maybe this isn't the best place for my question.

It's simpler just to assume you can't just buy a debt and give you tax free cash rather than explain. We would all be buynig cars and just lumping the debt straight in to our companies if that was the case.

**Wanderer** · 13 July 2010, 21:16

Originally posted by northernladuk View Post

Try searching the moneysupermarket forums for debt control or something like that.

Agreed. If you are in debt while contracting then you are in a high risk situation... You could look at one of these debt consolidation at low interest loans or whatever, but from the sounds of your latest post you are pretty moneysupermarket savvy and it's just a short term thing. However, you have to have a hard think and if there is any posibility that you are living beyond your means then don't even think about borrowing money from the company.

I was told that as the director of a LTD Co you can do pretty much anything you want. What you were suggesting would be to take a director's loan out of money retained in the company for VAT, PAYE and Corporation Tax. Although it's perfectly legal to do this, you are seriously playing with fire if you are not 100% in control of your finances. When the company needs the money to pay HMRC then you need to be able to pay back or you will land in serious trouble and your company will get stung for penalties. There are deadlines for paying the directors loans back without incurring corporation tax, interest or a benefit in kind tax charge. You need an accountant to tell you what you can get away with and exactly how to do it. Some accountants want a quiet life and will recommend that you don't do it at all or that you only take up to 5,000 as it keeps the accounts simple.

If you have a good credit rating and you can easily pay your LTD back when it needs the money out of savings or (by personally borrowing money if necessary) then you are OK. If you have maxed out your credit/store cards and you pay them off with money borrowed from your company then max them out again, you will get in a pile of trouble. Sorry if all that sounds a bit personal, I'm not making a judgement just stating the hypothetical scenarios.

Another thing to consider with Umbrella vs LTD is that you may be outside IR35 which will mean you can avoid paying a lot of tax. Check out the IR35 calculators on the 'net to get an idea of how much extra you can earn using a LTD.

Good luck!

Transfering personal debts to ltd company?