Contrary to the belief of many, it is not illegal for shareholders to borrow money from their limited company. However if the amount borrowed is not repaid within 9 months of the company’s accounting period end, the company is likely to incur a tax charge. The charge is paid along with the corporation tax liability for the accounting period in which the loan is made.
From 6 April 2016 the rate of tax charged on these loans increased to 32.5% (previously 25%). The increase applies only to loans and advances made on or after 6 April 2016.
The company is able to reclaim the tax paid on shareholder loans but only after the end of the accounting period in which the loan is repaid.
Remember also that there are complex anti-avoidance rules designed to stop the bed and breakfasting of loans to avoid a tax charge arising.
For more information, please contact Lesley Sutton on 01484 550037 or email Lesley.firstname.lastname@example.org