DLA on limited company tax return

[sultanoflondon]

Hi all,

I'm new to the business game and saw this on HMRC's website.

"If you lend your company money
Your company does not pay Corporation Tax on money you lend it."

"Interest you charge your company on a loan counts as both:
a business expense for your company
personal income for you"

Does this mean that directors loans to the company are tax-deductible? Specifically, if my company's EBITDA is £5,000 & I have made a £4,800 interest-free loan to the company, is corporation tax due on the remaining £200?

Finally, are there any limits on how much or how little the director can lend to the limited company? Any time limits on when the limited company must repay the director?

Thank you!

 

[ExpertAccountant]

Hi SultanofLondon. No, the loan amount will not be deductible from the EBITDA. It is only the interest element that will be deductible, which in this case isn't any. There is no limit on how much/little the director can lend to the limited company. Also, there are no limits on when the limited company must repay the director. There maybe tax advantages of charging interest on the DLA, but seek professional advice on this.

 

[SteveHa]

There maybe tax advantages of charging interest on the DLA, but seek professional advice on this.

Although, if you already receive interest in excess of the 0% band from other sources, there won't be. You'll pay (at least) 20% tax to save 19%.

 

[dotcomdude]

Here's a hypothetical example of a purchase funded by a Director's Loan, which would be allowable for tax relief:

You loan your company £5,000
The company uses that £5,000 to buy a new computer
£5,000 is allowable for tax relief under the Annual investment allowance

The loan shows as a £5,000 debt on the company's balance sheet and the profit is reduced by £5,000 in the year concerned because you bought the computer.

 

[ExpertAccountant]

Although, if you already receive interest in excess of the 0% band from other sources, there won't be. You'll pay (at least) 20% tax to save 19%.

Yes, that's correct. Hence, OP needs to seek professional advice for his specific circumstance to see if there are any tax advantages of paying interest on DLA from the company.