Loan to Business

Tony255

Hi,

I was watching an episode of dragons den last night and one of the guys said that he had made a loan to his business of a couple of thousand. What is the situation here, does the company account pay him back personally and what is the tax situation in doing something like this as he has already paid tax on the money loaned to the business?

Regards
Tony

Snowdrop

Generally speaking, there should be no implications tax or otherwise providing the company can still pay all it's other obligations to the bank or taxman.

You should check with your accountant though as he/she will be familiar with your company and can give you a definitive answer.

Locamon

Snowdrop wrote: »

Generally speaking, there should be no implications tax or otherwise providing the company can still pay all it's other obligations to the bank or taxman.

You should check with your accountant though as he/she will be familiar with your company and can give you a definitive answer.

If you lend your money and then you get paid back no issue. Tax issues only arise when you make money -so if the company agrees to pay you interest on the loan, which is common enough, then there are tax implications because you are making an income from the interest.

Would be pretty sad if you go taxed on the money twice:( Of course if you loan large sums that you can't account for you would draw some attention from the tax man!

Tony255

Thaks for the replies.

So just so i can get this clear in my rookie head :rolleyes: I have personally invested money in my website so when hopefully if I have a bit of money left over at the end of each month I can take this as some sort of loan repayment, before I even deduct any taxes this can be seen as another bill that the business has? As I am only registered as a sole trader is this still ok?

I am thinking long term here, I dont expect to be in a situation like this for a long time.

Thanks Again

dbran

Hi

As a sole trader you are taxed on the profits that you earn and not on the funds that you put into the business or take out. If you lend money to the business or repay money it is tax neutral and will not effect the actual profits that the business earns and as a result the tax that you pay.

The situation is different if you are trading as a company. In that case you only pay tax on the salary that you decide to pay yourself. So as a company you could pay yourself zero and just repay the loan you are owed and not be taxed for PAYE. But then you would have to deal with corporation tax.

Regards


Dbran

Locamon

Tony255 wrote: »

Thaks for the replies.

So just so i can get this clear in my rookie head :rolleyes: I have personally invested money in my website so when hopefully if I have a bit of money left over at the end of each month I can take this as some sort of loan repayment, before I even deduct any taxes this can be seen as another bill that the business has? As I am only registered as a sole trader is this still ok?

I am thinking long term here, I dont expect to be in a situation like this for a long time.

Thanks Again

Because you are a sole trader there is no clear line of demarcation but the same logic applies but in this case I advise you to talk to an accountant because really you are talking about expenses and what is allowable and what is not. There are quite a lot of things you can write off as expenses, such as some of your household bills, that do not apply to a company so best get an hour of advice -most accountants will give you the first hour free for start ups.

Hopefully you get to the profitable stage soon:)