Borrowing money from own company

digzy

I need to borrow some money from my company. Once this is returned to the company before the end of the tax year, is there any revenue issues ?
Essentially I'd be using the company for a short term interest free loan.

srsly78

Tax payable on the benefit-in-kind (of it being interest free).

digzy

what are you looking at (sum being 10k)

Peregrinus

The interest cost of borrowing that sum for whatever term you borrow it at a notional interest rate of 13.5% will be imputed to you as income and you will pay income tax on that sum.

So, e.g., if you borrowed 10k for a full year, you'd be treated as receiving a benefit-in-kind of 1,350, and you'd pay tax on that amount at your marginal rate.

(There's a lower interest rate used if you are borrowing a "qualifying home loan", but from what you say it doesn't sound like that will be relevant to your situation.)

digzy

Peregrinus wrote: »

The interest cost of borrowing that sum for whatever term you borrow it at a notional interest rate of 13.5% will be imputed to you as income and you will pay income tax on that sum.

So, e.g., if you borrowed 10k for a full year, you'd be treated as receiving a benefit-in-kind of 1,350, and you'd pay tax on that amount at your marginal rate.

(There's a lower interest rate used if you are borrowing a "qualifying home loan", but from what you say it doesn't sound like that will be relevant to your situation.)

ive a lump sum in the company so was gonna use it against the mortgage

Peregrinus

How is that going to be a "short-term loan"?

relax carry on

digzy wrote: »

ive a lump sum in the company so was gonna use it against the mortgage

The company currently owes you money? Is taking money out of the company not a repayment of a directors loan?

digzy

Peregrinus wrote: »

How is that going to be a "short-term loan"?

Because I’ll pay it back from my sole trader income

Peregrinus

This won't be a "qualifying home loan" for you, for several reasons, the main one of which is that only a company already in the trade of providing home loans (e.g. a bank or building society) can make qualifying home loans to its employees. So your tax on your benefit in kind will be calculated on the basis of a notional 13.5% interest rate.

SRASE

I am not sure that the employer has to be in the trade of providing home loans for the lower BIK rate to apply.

The BIK rate is set out in Section 122 and states that a qualifying loan is defined in Section 244(1)(a). Section 244(1)(a) defines a qualifying loan as "a loan or loans which, without having been used for any other purpose, is or are used by the individual solely for the purpose of defraying money employed in the purchase, repair, development or improvement of a qualifying residence or in paying off another loan or loans for such purpose".

Peregrinus

SRASE wrote: »

I am not sure that the employer has to be in the trade of providing home loans for the lower BIK rate to apply.

The BIK rate is set out in Section 122 and states that a qualifying loan is defined in Section 244(1)(a). Section 244(1)(a) defines a qualifying loan as "a loan or loans which, without having been used for any other purpose, is or are used by the individual solely for the purpose of defraying money employed in the purchase, repair, development or improvement of a qualifying residence or in paying off another loan or loans for such purpose".

Yes, but check the definition of "specified rate" in s.122(1)(a). You only the the lower "specified rate" if the loan is a qualifying loan under s.2445 and making such qualifying loans is the trade, or part of the trade, of the employer.

SRASE

Section 122(1)(a) states the specified rate either:
(i) 4% in case of qualifying loan; or
(ii) rate used by employer in trade of home loans; or
(iii) 13.5%

Even though option (ii) above does not apply I would think option (i) may still be available as it is not required to satisfy both conditions.