Reply to: Intercompany Loan SPV

[TheGreenBastard]

I'm not experienced / knowledgeable on changing the SIC of your IT Co to another SIC , and then starting up another company for your IT business. It doesn't sit right with me but at the same time I can't find anything wrong with it. Will be interesting to see what the others on CUK think about it.

You're right, it's nonsense.

No bank is going to provide a mortgage for a company with a changed SIC, the reason is all that pre-BTL history is deemed a risk.

Banks will lend to already existing BTL Ltds or new SPV Ltds.

[richardy]

You don't need to charge interest. You don't need to make (regular) repayments. You can repay whenever it suits.

Are you sure no need to charge interest as many accountancy websites suggesting should charge market rate?

[richardy]

interest free loan

This works well. But there is no need to charge interest and it is tax neutral so I wouldn't bother.

Are you sure interest doesn't need to be charged at market rate?
I see many accountancy related websites suggesting it does, e.g.
FRS 102: Loans between related parties | AccountingWEB

What if the loan goes beyond a tax year?

[LoanCharged]

That would be the best way (for your accountant to adjust for it separately). However, if you're dead set on having Freeagent give you a more accurate estimate, the work around that I can see would be to create an admin expense account and untick the box that says allowable for tax. Yes, it's an expense account rather than an income/sales account and you'll end up with a credit balance on this newly created account, but it could work out your CT more accurately. I've not tried or tested it but if my logic is right, it's a rough and dirty work around.

I think I have cracked it! I created a new Income category called (Intercompany Dividend) and allocated the payments to that. I then added a journal entry moving the Intercompany Dividend to the Contra account. The P&L now looks spot on as does the Balance Sheet.

[Craig@Clarity]

Thanks for the clarification and you are indeed correct. I may have misconstrued this due to my accountant setting this up a certain way in FreeAgent. It appears FreeAgent can not handle this scenario and shows the dividend is liable to CT.

In reality, the accountant would adjust for this in the tax computation separately regardless is what FreeAgent is showing.

That would be the best way (for your accountant to adjust for it separately). However, if you're dead set on having Freeagent give you a more accurate estimate, the work around that I can see would be to create an admin expense account and untick the box that says allowable for tax. Yes, it's an expense account rather than an income/sales account and you'll end up with a credit balance on this newly created account, but it could work out your CT more accurately. I've not tried or tested it but if my logic is right, it's a rough and dirty work around.

[LoanCharged]

Let me correct myself. They used to be called Franked Investments but since the change in 2016 and the abolition of tax credits, it's simply exempt from CT if the dividends are from UK company to UK company. You'd just adjust for the dividend income on the tax computation. Still no CT consequence though

Thanks for the clarification and you are indeed correct. I may have misconstrued this due to my accountant setting this up a certain way in FreeAgent. It appears FreeAgent can not handle this scenario and shows the dividend is liable to CT.

In reality, the accountant would adjust for this in the tax computation separately regardless is what FreeAgent is showing.

[craigy1874]

Let me correct myself. They used to be called Franked Investments but since the change in 2016 and the abolition of tax credits, it's simply exempt from CT if the dividends are from UK company to UK company. You'd just adjust for the dividend income on the tax computation. Still no CT consequence though

Agreed.

If your accountant is advising you dividends are taxable when received by a company, I would recommend you get another accountant - that's basic stuff.

[Craig@Clarity]

Yes I'm sure about this. Ask him about Franked Investments

Let me correct myself. They used to be called Franked Investments but since the change in 2016 and the abolition of tax credits, it's simply exempt from CT if the dividends are from UK company to UK company. You'd just adjust for the dividend income on the tax computation. Still no CT consequence though

[ChimpMaster]

Thanks ChimpMaster.

Once the loan has been repaid fully, do you reckon that having such intercompany loans in the past, could still cause any issues in MVL or Entrepreneur Relief, when closing the IT company?

Or once that loan has been repaid fully, then its all good and clear?

No problem, so long as the loan is repaid or written off before you start the liquidation process.

[Craig@Clarity]

Yes I'm sure about this. Ask him about Franked Investments

You sure about this? The SPV receiving the dividend will declare the payment on P&L account as turnover (income from shares in group undertakings).

This is then open to CT. That’s my understanding anyway based on accountant advice.

[Pegasus]

Note that an outstanding loan can be a blocker to MVL if you plan to close the IT company. So the loan has to be paid back from the SPV, or the loan has to be written off somehow (which is tax-neutral).

Thanks ChimpMaster.

Once the loan has been repaid fully, do you reckon that having such intercompany loans in the past, could still cause any issues in MVL or Entrepreneur Relief, when closing the IT company?

Or once that loan has been repaid fully, then its all good and clear?

[ChimpMaster]

Thanks for the Info!
My accountant is a local accountant who are really good for contracting accounts but not much experience with SPV's i don't think, i did give Gorilla accounting a call who was great so i'm going to look at the feasibility of running 2 separate business with different accountants.

I will look into changing the SIC code of contractor Company as the benefit is i won't create a link between Contractor CO earnings and SPV earning however not sure how the mortgage underwriters will look at the SPV previously being a consulting company as there is always an element of risk of previous clients potentially looking for warranty from previous works done.

Cheers for the advice

Woah, be careful there. YOU need to understand what you are doing because ultimately YOU are responsible, not your accountants. My advice would be to keep to one accountant - an accountant that is good and understands the various facets of your businesses. Else you will be left to juggle the comms and numbers.

I'm not experienced / knowledgeable on changing the SIC of your IT Co to another SIC , and then starting up another company for your IT business. It doesn't sit right with me but at the same time I can't find anything wrong with it. Will be interesting to see what the others on CUK think about it.

Mortgage lenders would be the least of my worries.

[eddie1507]

No limit that I am aware of but make sure you have enough in the IT company to cover outgoings and taxes.

I made sure I was majority shareholder in both companies too.

Note that an outstanding loan can be a blocker to MVL if you plan to close the IT company. So the loan has to be paid back from the SPV, or the loan has to be written off somehow (which is tax-neutral).

Who is your accountant? I can introduce you to mine if you like - PM me - but only if you're serious.

Thanks for the Info!
My accountant is a local accountant who are really good for contracting accounts but not much experience with SPV's i don't think, i did give Gorilla accounting a call who was great so i'm going to look at the feasibility of running 2 separate business with different accountants.

I will look into changing the SIC code of contractor Company as the benefit is i won't create a link between Contractor CO earnings and SPV earning however not sure how the mortgage underwriters will look at the SPV previously being a consulting company as there is always an element of risk of previous clients potentially looking for warranty from previous works done.

Cheers for the advice

[Maslins]

Why? Please elucidate your concerns. Have HMRC got this planning on their radar?

Not that I'm aware of...I just don't think it's a good option. I've elaborated on my views a few times on here before, so apologies but I can't be bothered typing it all up again. I'm sure you can find via a search if you're keen.

[eddie1507]

Sorry how can you purchase 2 or 3 hourses with 120K??

Looking at 25% Deposit on small houses, the 120k isn't a hard rule as there is a surplus there.