Business set up/directors loans?

[johnhamilton0]

Hi Guys,

Thanks for the help previously about accountants.
Just needed somemore help if thats ok?

We've just started our limited company and the bank account is in the middle of being set up. We've also applied for a business loan to help with the start up costs. One of these costs is the insurance - as the loan hasn't been set up yet whats the best way to pay for the first instalment?

Can I pay it from my own personal account and then take the money from the business loan when it is in place? are there legal implications or better ways of doing this?

Cheers for the help.


John.

 

[Alpha]

By using personal funds you are in effect creating a 'Directors Loan Account' which means that the company owes you money and therfore you can be repaid this at any time that the company has the funds.

There is no tax implication for this straightforward transaction.

If you leave the funds as owing you can get the company to pay a 'reasonable' amount of interest on the loan. This however needs to be reported on a quarterly basis using form CT61 and 20% tax has to be deducted from the interest paid and handed over to HMRC again quarterly (Just the same as banks and building societies have to do with interest paid)

 

[johnhamilton0]

Thanks Alan for your help.

So basically; I can write a cheque for say £400 send that off to cover a cost.

When the loan is set up and the money is in the bank I can just take it back out again.

Do I need any legal aspects to be covered speak to an accountant/solicitor or have written proof?

I don't need any interest payments as it will only be for a couple of weeks.



John

 

[Alpha]

Do I need any legal aspects to be covered speak to an accountant/solicitor or have written proof?

No apart from keeping the accounting record of the transaction

 

[Riggadoo]

If you leave the funds as owing you can get the company to pay a 'reasonable' amount of interest on the loan. This however needs to be reported on a quarterly basis using form CT61 and 20% tax has to be deducted from the interest paid and handed over to HMRC again quarterly

Wow I did not know this! However I imagine by the 20% reference that the money is classed as earnings and therefore reduces the money we can take from our businesses before paying higher rate taxes??

Also, what would be considered "reasonable interest" based (for example) money which has been sitting in a Directors Loan account for one whole financial year?

 

[Joyous]

Wow I did not know this! However I imagine by the 20% reference that the money is classed as earnings and therefore reduces the money we can take from our businesses before paying higher rate taxes??

Also, what would be considered "reasonable interest" based (for example) money which has been sitting in a Directors Loan account for one whole financial year?

The amount is classed as investment income, not earned income.

Regarding what’s considered reasonable interest. Provided you stay in line with what you’d have had to pay if the company had taken the loan from a bank/commercial lender you should be OK.

Regards

Joy