Personal Loan from CompanyCompany personal loan
As a matter of fact, many contractor lend funds from their company, some for relatively brief terms, while others lend large amounts for long terms. If, for whatever reasons, you are tempted to lend funds, you should first consider whether you can leave enough liquid assets in the company to enable it to settle its debts, especially your taxes, on schedule.
Even though seldom carried out, you as a manager should keep the loan taken out and the conditions of the loan in a board resolution. Though just red tape, it serves to capture the loan when it is made. The Companies Act generally provides that a loan of 10,000 pounds usually needs formal shareholder consent.
If the total amount owed by you is more than 10,000 and is either interest-free or at an interest level below an official interest level (2.50% from April 2017), you will receive a rateable withdrawal. Your contribution in kind is added to your personal earnings and taxed at your highest personal earnings taxation level.
For what kind of tax is the company responsible? Company also assumes social security (NI) costs amounting to 13.8% of the value of the contribution in kind. In the event that the loan matures over an extended term, the Company may be held responsible for any further corporate income tax payments.
When a loan to a Participant or an associated company of a Participant matures 9 month and 1 working day after the end of the financial reporting periods of the Participant at the end of the year, this means that the Company must make a corporation tax payable of 25% of the amount maturing. Corporate income tax payments can be reclaimed if you reimburse the loan to the company.
HMRC will not make the reimbursement until 9 month and 1 working day after the end of the settlement cycle in which the loan is reimbursed to the Company. When you pay back part of the loan, a proportion of the corporation tax payable is refunded. If your company "writes off" a loan, what happens?
Launched in 2013, the new regulations influence the treatment of credit when it is reimbursed and "replaced" by new credit. When the loan is depreciated and never paid back to the company, the amount of the loan is handled according to your relation to the company. When you are a partner and managing partner (the usual position for joint-stock companies' contractors), the amount depreciated is considered a dividend and the company does not receive any income taxes reduction.
However, although the amount depreciated is considered a payout for personal tax purposes, this is not the case for NI. NI costs would be a reduction of the company's profit. When you are only a manager, the amount depreciated is considered a net amount after deducting taxes and is offset until PAYE and NI are calculated.
It would then be allowed to subtract the employer's NI and GNI from its profit and obtain income taxes. Lending to your boyfriend and your loved one may differ from the above. A loan granted to your spouse is often subject to taxation as if it had been granted to you, but if the loan is granted to a boyfriend or a distant member of your household, in certain cases the loan may not be taxable in the manner described above.
If the loan is taken out for certain qualified uses, there are also other restricted exceptions. Consult the reason for a loan with your bookkeeper to find out any options that may restrict either the contribution in kind or the corporate income tax burden.