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. The rate is currently 32.5%.
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.
A taxable benefit will arise if the loan exceeds £10,000 and interest is not paid on it at HMRC’s official rate of interest (currently 2.5%). The taxable benefit is required to be reported on form P11D. Class 1A NICs will be payable by the company on the beneficial loan interest.
For more information, please contact Lesley Sutton on 01484 550037 or email firstname.lastname@example.org.