Reply to: Loan to a friend from LTD

[ASB]

In terms of whether its wise, lots has been said.

In terms of whether it is legal. Yes.

Though if you don't have a consumer credit licence it might not be.

Also wife is 49pc shareholder. Her mother is a close relative. This may well be near enough for hmrc to want to treat it as a stakeholders loan. Though given a commercial rate is being paid this shouldnt be too onerous. Except for the advance tax.

Hmrc guidance should help with determining if it is lukely to be counted as a stakeholders loan.

Easy enough to borrow from a supermarket at 3.2 ish with a decent credit record.

[missinggreenfields]

If something is allowed, I want to do it.

You're allowed to drink sulphuric acid. That doesn't make it smart to do so.

You are allowed to log out of an internet forum and not return.

Many things are allowed - as others have said that doesn't mean you should do them.

[stek]

Ich spreche kain Deutch.

...kein Deutsch.

Aside from that Surströmming is Swedish revolting smelly aged herring, smells like dead bodies....

[MrMarkyMark]

That's not quite right though and as the post you quoted says, its simplified. It works the same as any other director's loan and the 25% (I think its gone up to 32.5% now in line with dividend tax changes) becomes due on any outstanding balance 9 months after the end of your financial year (i.e. when your CT payment is due). If the loan is fully repaid by that point there is no tax to pay.

Thanks!

[TheCyclingProgrammer]

From the link I posted, though, as it was not a business loan you would have to pay 25% LV upfront to HMRC?

That's not quite right though and as the post you quoted says, its simplified. It works the same as any other director's loan and the 25% (I think its gone up to 32.5% now in line with dividend tax changes) becomes due on any outstanding balance 9 months after the end of your financial year (i.e. when your CT payment is due). If the loan is fully repaid by that point there is no tax to pay.

[MrMarkyMark]

From the link I posted, though, as it was not a business loan you would have to pay 25% LV upfront to HMRC?

This reduces, as they pay it back, as the loan is repaid.

Surely, that's enough of a reason to take the loan yourself, then lend it out if you want?

[kolata]

Here's the thing. Your "question" at the start was nothing to do with a directors loan or a relative. It was about lending money to a friend. Now you've told us a little bit more, so you've changed your question.

Maybe there's more hiding... NO
Is this relative based in the UK? YES
Is this relative aware that they will be taking out a loan from your company and not you personally? YES
Is this relative aware they are taking out a loan at all? YES
Will the relative be purchasing something which you will then be using? NO

How about this for an idea...
Get your MIL to buy a car with a loan from your company.
She then defaults on the repayment, so your company take possession of the car. Except when they take possession of it, it's value is considerably less than was originally paid. You lend £15k, end up with a car valued at £10k, hey presto you've saved tax on £5k.
...is that your idea?

good idea, use it you want. I am not interested.
My last post in this topic.

[northernladuk]

Just fill your boots and log off.

[Lance]

That is it OK. I want to be 100% sure.

Then seek professional advice.
And stop moaning when you don't like the advice you get for free.

[WTFH]

That is a logical thinking, yes. I know the rules for dir loan, my question was are they the same for relatives. It seems they are.

Here's the thing. Your "question" at the start was nothing to do with a directors loan or a relative. It was about lending money to a friend. Now you've told us a little bit more, so you've changed your question.

Maybe there's more hiding...
Is this relative based in the UK?
Is this relative aware that they will be taking out a loan from your company and not you personally?
Is this relative aware they are taking out a loan at all?
Will the relative be purchasing something which you will then be using?

How about this for an idea...
Get your MIL to buy a car with a loan from your company.
She then defaults on the repayment, so your company take possession of the car. Except when they take possession of it, it's value is considerably less than was originally paid. You lend £15k, end up with a car valued at £10k, hey presto you've saved tax on £5k.
...is that your idea?

[MrMarkyMark]

from the same page:



However it is not clear to me if the loan is repaid on time does the above change?

Why on earth would it? It seems crystal clear to me.

In fact the author wrote that to prevent any further idiotic questions, such as yours, on that thread

[kolata]

Ok, a definite Surströmming odour then.....

Ich spreche kain Deutch.

[stek]

you wish.

Ok, a definite Surströmming odour then.....

[kolata]

It's totally relevant.

Many things are "allowed" but that does not make them a good idea.

What has your accountant told you?

That is it OK. I want to be 100% sure.
Your point exactly: one acct might say it is OK, other might say it is NOT OK (based on the notion it is a stupid thing to do and MIGHT cause problems in future). Hence the need for second opinion.
However I want to know what the law says, and make a decision.

[WTFH]

If something is allowed, I want to do it.
Why not going any other way is irrelevant.

It's totally relevant.

Many things are "allowed" but that does not make them a good idea.

What has your accountant told you?