How can I invest my personal money in my own Limited company in the UK?

Question

I registered a Limited company in the UK one year ago and I am the sole shareholder and sole director of the company. Now I want to invest £50k in the company so that I can buy products and rest of the things required for business.

Is it as simple as transferring the money from personal bank account to the business bank account and then buying whatever needed through the business bank account and pay taxes whatever at the end of the year?

Or there is a special structure and procedure to be followed?

Another question, If I transfer £50K from personal bank account, is it possible to take some money out if I need in the future for personal purposes?

My background

I have saved £60k for business start-up and my personal expenses and that is the only money I have at the moment. I registered the company last year and now I want to go full-time in business and wondering what structure should I follow for spending on the start-up expenses and so on.

It is pretty confusing for me as I read the concept that once you give the money to the LTD company; that money belongs to the company only even though I am the sole shareholder and director of that company and even I used my personal saving for the company.

I asked one chartered accountant and he said I should not worry that much and transfer whatever money required in the business bank account from personal bank account.

Answer 1

As discussed in the comments, the best approach is to make a loan to the company. Make sure you document the terms of the loan including when it is repayable and any interest due. If you want to be able to retrieve the money for personal purposes then just note that it's repayable on demand.

In practice if you just transfer money to the company when needed it would probably be treated as an interest-free loan, but even if that's what you want, it's best to document this to avoid any ambiguity.

The main alternative would be for the company to issue shares that you would own and "pay up" the capital on. This would get the same money into the company, but it'd be harder to get it out again later.

You may want to charge interest on the loan. The rate would have to be a reasonable one but you still have a fair amount of latitude in deciding it. Any interest would reduce the profits of the company and be subject to income tax when you receive it. Those profits would otherwise be subject to corporation tax. and then if paid out as a dividend might be subject to some income tax.

You'd need to compare the tax rates for the two routes to see which was better; note that you pay less income tax than normal on dividends to account for the fact that corporation tax was already charged.

Answer 2

As you own a company, you need to know what your role is. You can never just move money into or out of the company, you have to identify the role in which you are doing it, and do it properly.

There is Company, and there is You, in three different roles. You are the sole shareholder and director of Company. You are the sole employee of Company. You are also just a private person. You need to keep these three roles separate. As the sole shareholder, you own the company. However, you don't own any assets of the company. The company is yours, but the money in its bank account isn't.

As a private person, you give a loan to your company. You write on a sheet of paper that You personally, give a loan to the company, how much a loan is, what interest is paid, and when the loan will be paid back (that could be 'whenever You demands the money paid back'). Then you move the money from your private bank account to the company bank account, and the company has the money it needs to fund its operation. Assume it wasn't you who loaned the money, but I gave the loan to the company. You can imagine that I would have this loan written down and signed before I hand over the cash. And you must have exactly the same papers that I would have.

How do you get money from the company? The company can pay back your loan. That should be written down again, in the same way as the loan itself was written down. Other than that, there are three ways how you can get money out of the company: The company can pay You, in your role as its employee, a salary, which it can deduct from its profits. The company can pay money into a pension of the company director (that's You in your role as company director) up to £40,000 or so a year; that money is deducted from its profits again. The company pays 20% tax on its remaining profits. Then the company can pay You, in your role as company director, a dividend, usually twice a year. Each of these payments has to be written down and given to HMRC properly.

Best by far to use an accountant to do all the paper work for you and advice you what to do. You can lose a lot of money by just not getting the paperwork right, by filing late etc., which the accountant will get right. The accountant will also tell you what are the optimal amounts for salary and dividend (best is a small salary, about £10,000 a year, dividend of about £30,000 a year, pension as much as the company can afford, which is then all tax free to you). You can't pay more dividend then the company can afford (paying a dividend and then not being able to pay your suppliers is criminal), and if you want higher dividends, then you will have to pay taxes on them.

Answer 3

for starters get a cheap easy accounting software pack like quickbooks and have the salesmen train you on it's use and set-up. the 50k you put into the company will count as paid up share capital. then any future withdrawal from company account will show as loan to director.