Reply to: Lending money from funds put aside for tax

[tractor]

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Considering this is a dear relative, their well being is more important to me than the money... The figure is in 4 digits rather than 5 so losing it will not be the end of the world.

Wellbeing is a health or similar matter, not expansion of a business. You appear to be set on it but are still looking for approval, encouragement or whatever which leads me to think you really are not sure. If in doubt, don't do it. If you really are that hell bent on helping, offer to be a loan guarantor.

[tractor]

...

Aside from putting monies that are provision for VAT & CT etc into a deposit account, it is not sensible nor good practice to commit it to anything.

As far as the specific question, never mix business with pleasure (or anything else come to that) but especially friends and relatives.

[jamesbrown]

This is a terrible idea in every respect. Plus, you're a contractor, so you should be able to roll off a few notes from the wad in your pocket. Don't get your business involved.

[northernladuk]

Considering this is a dear relative, their well being is more important to me than the money... The figure is in 4 digits rather than 5 so losing it will not be the end of the world.

We are wasting our time here. Let's go for another tactic...

Yeah that's great, no problems. Go ahead. Speak to your accountant.

Thread closed.

[NorthWestPerm2Contr]

If you do lend the money be prepared to write it off as soon as you lend it or be willing to ruin the relationship with the relative if things don't go to plan. As others have pointed out, mixing money with friends/family is a recipe for disaster in my experience.

If you do lend the money you need to check to see if you need a consumer credit license, I'm not up to speed on the current rules as I believe they changed in April this year when the FCA took over the management of it all.

Personally, if you do lend the money I'd only do it out of 'free funds' i.e. ones that you could afford to lose.

Also, depending on who the relative is you may be caught by s455 and have the 25% surcharge applied if the loan isn't repaid within 9 months of the yearend (which I assume it would be as you're currently thinking of loaning the money set aside to pay the corporation tax!).

Martin
Contratax Ltd

Considering this is a dear relative, their well being is more important to me than the money... The figure is in 4 digits rather than 5 so losing it will not be the end of the world.

[ContrataxLtd]

hopefully a straight forwards answer to this question.

Relative is setup as sole trader and has a retail business. Lending funds to them on a short term basis could help the business grow more...

Corporation tax funds in company account won't need to be paid until end of 2015.... Is there a legal and legitimate way to lend some of those funds to my close relative for say a period of 9 or 10 months to allow them to increase stock and grow the business?

If you do lend the money be prepared to write it off as soon as you lend it or be willing to ruin the relationship with the relative if things don't go to plan. As others have pointed out, mixing money with friends/family is a recipe for disaster in my experience.

If you do lend the money you need to check to see if you need a consumer credit license, I'm not up to speed on the current rules as I believe they changed in April this year when the FCA took over the management of it all.

Personally, if you do lend the money I'd only do it out of 'free funds' i.e. ones that you could afford to lose.

Also, depending on who the relative is you may be caught by s455 and have the 25% surcharge applied if the loan isn't repaid within 9 months of the yearend (which I assume it would be as you're currently thinking of loaning the money set aside to pay the corporation tax!).

Martin
Contratax Ltd

[northernladuk]

Official rate of interest is 3.25% now, not 4%

HMRC announces fall in official rate of interest for 2014/15 | Moore Stephens Blog

[JustinTime]

I guess i could wait a month or two and use spare business funds... How would that work then?

That is a much better idea.

Get a loan agreement from the internet; define a fixed period for the loan; apply a 4% interest rate; get the money back into your company's account within 9 months of your company's year end.

Job done.

There is a 25% tax hit to HMRC if you don't repay the loan within the 9 month window. This is a "bond" to ensure that you're not sneaking money out of the company, and it will be repaid - I think that this is at the end of the next company year end - when the loan is paid off.

BUT...
Don't lend out money that you cannot afford to lose.
Maybe not the best idea to lend to a friend.

HTH.

[NorthWestPerm2Contr]

What happens if it fails? If you haven't got the money to pay the tax, then you're going to be in trouble.

Neither a borrower nor a lender be.

Forecast for my business is looking good, I have withdrawn full years allowance hence I have enough money to get me through to May next year with more funds arriving to build up the warchest to get me through to end of next year.... I guess i could wait a month or two and use spare business funds... How would that work then?

[TheFaQQer]

hopefully a straight forwards answer to this question.

Relative is setup as sole trader and has a retail business. Lending funds to them on a short term basis could help the business grow more...

Corporation tax funds in company account won't need to be paid until end of 2015.... Is there a legal and legitimate way to lend some of those funds to my close relative for say a period of 9 or 10 months to allow them to increase stock and grow the business?

What happens if it fails? If you haven't got the money to pay the tax, then you're going to be in trouble.

Neither a borrower nor a lender be.

[eek]

Couple of FTFY's

It gets worse than that. I found the business and suggested going for it now. It needs a few grands worth of equipment to do it properly and the equipment plus access to some expertise and training appeared on eBay cheaply

[northernladuk]

Gotta ask why you have to lend money that is owed to the tax man. Where is your war chest?

[northernladuk]

Saying that I'm doing exactly the same for Mrs Eek's new business. But as she is my wife it's all hers anyway.

Saying that I'm doing exactly the same for Mrs Eek's new business. But as she is my wife and she told me to I don't have a choice.

Couple of FTFY's

[northernladuk]

Don't lend friends money, particularly from your business.. period...

EDIT : Even more so when it exposes you to problems. At the very least use spare money you can afford to lose.

[eek]

hopefully a straight forwards answer to this question.

Relative is setup as sole trader and has a retail business. Lending funds to them on a short term basis could help the business grow more...

Corporation tax funds in company account won't need to be paid until end of 2015.... Is there a legal and legitimate way to lend some of those funds to my close relative for say a period of 9 or 10 months to allow them to increase stock and grow the business?

There is a flaw in your plan. How will you pay the tax if you don't get the money back.

There is a simple rule NLUK highlights above. Never lend money to friends and family as getting it back may destroy relationships...

Saying that I'm doing exactly the same for Mrs Eek's new business. But as she is my wife I'm willing to forget about things and write off the money if it doesn't go well..