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Can a limited company lend money to the director or another person?

What are the limits, the rules, any minimum rate, the things to know...?

  • Major rule: If HMRC thinks you do it to avoid paying the director a salary and to avoid paying income tax, you are in trouble. – gnasher729 Feb 27 '15 at 16:39
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Another person, not a shareholder or director, will be treated as when a bank loans you money. You are loaning out money and you are sort of getting interest income out of it or some other benefit, which needs to be put down in you company's annual return.

Full source on the HMRC website.

But for a shareholder or director is different matter. Check the HMRC source for sure and check with your accountant, if you have one.

If you owe your company money

You or your company may have to pay tax if you take a director’s loan. Your personal and company tax responsibilities depend on how the loan is settled. You also need to check if you have extra tax responsibilities if:

  • the loan was more than £10,000 (£5,000 in 2013-14)
  • you paid your company interest on the loan below the official rate

If the loan was more than £10,000 (£5,000 in 2013-14)

If you’re a shareholder and director and you owe your company more than £10,000 (£5,000 in 2013 to 2014) at any time in the year, your company must:

  • treat the loan as a ‘benefit in kind’
  • deduct Class 1 National Insurance

You must report the loan on your personal Self Assessment tax return. You may have to pay tax on the loan at the official rate of interest.

If you paid interest below the official rate

If you’re a shareholder and director, your company must:

  • record interest you pay below the official rate as company income
  • treat the discounted interest as a ‘benefit in kind’

You must report the interest on your personal Self Assessment tax return. You may have to pay tax on the difference between the official rate and the rate you paid.

  • You do have to be careful when lending to unconnected parties that you're straying into areas where a consumer credit licence might be required. – Nigel Harper Feb 25 '15 at 12:26
  • @NigelHarper - I would assume any sane director would never ever try to loan money to somebody else, not related to the company. – DumbCoder Feb 25 '15 at 13:03
  • +1 for your answer, but why not trying to loan to somebody else? – Thomas Feb 25 '15 at 13:09
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    @Thomas As Nigel mentioned, you cannot lend money to others and charge interest unless you have a license. You can donate. If you want to do it under the radar, you can go ahead, but it is illegal and if HMRC or FCA come to know about it you will be fined or at worst imprisoned too. – DumbCoder Feb 25 '15 at 13:59

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