Lending personal money to ltd business (short term)

Discussion in 'General Business Forum' started by DirectorToby, Nov 9, 2018.

  1. DirectorToby

    DirectorToby UKBF Newcomer Free Member

    2 0

    I appreciate this question has already been asked but I’m still unsure.

    I run a business in waste management (House clearance) and I’ve got my first job coming up soon. I need to lend my business some money to cover disposal costs until I receive payment from the client. How would I go about doing this? I have paid for the website and all of the other associated costs through my personal account. I have a QuickBooks account which I am planning to use. I understand it’s a directors loan but how would I do this so it’s done properly?

    All replies appreciated,
    Posted: Nov 9, 2018 By: DirectorToby Member since: Nov 9, 2018
  2. dotcomdude

    dotcomdude UKBF Regular Full Member

    243 31
    Simplest way is to just pay the bill yourself and when your business has the funds, put the receipt in as expenses and take the money out.

    You can record it as a Director's loan if you need it reflected in the books, but if it's your own small business the other way is simpler.
    Posted: Nov 9, 2018 By: dotcomdude Member since: Jul 27, 2018
  3. Noah

    Noah UKBF Ace Free Member

    1,042 250
    Urgh! In my humble opinion, you've started on a path that can lead to major grief - get off it now.

    Your money is not interchangeable with the business' money, in either direction.

    Put some money into the business's bank account and record it on your books as a Director's Loan (as advised above). If you need to put more money in, do the same again. When your business makes money, you can decide when to pay back the loan - in stages if you wish - and of course record it on the books, paying down the Director's Loan.

    You can of course charge the business interest on your loan, but this should be formally recorded - directors' meeting minutes or similar.

    Not an expert, so give more credence to any subsequent posts that indicate a knowledgeable individual.
    Posted: Nov 9, 2018 By: Noah Member since: Sep 1, 2009
  4. DavidWH

    DavidWH UKBF Enthusiast Free Member

    1,315 241
    The above sounds correct to me. Keep business & personal cash separate for simplicity.

    I would at every possible opportunity at least get a deposit to cover your expenses.

    What if they don't pay?
    You do the job & they then start quibbling over price?
    Suppose they get a cheaper quote and use someone else after you've paid your money?
    Posted: Nov 10, 2018 By: DavidWH Member since: Feb 15, 2011
  5. DirectorToby

    DirectorToby UKBF Newcomer Free Member

    2 0
    Thank you all for your replies.

    This whole issue has come about due to the nature of the business. I collect a clients waste and then pay to dispose of it, when the job is complete they’ll pay me for my service. In theory after a couple of jobs I shouldn’t need to be lending personal funds into the business.

    I was getting very confused with the tax implications of lending personal funds to a limited company. I am aware that the limited business is a separate entity.

    @dotcomdude I think your first suggestion will be the simplest. I am set up on QuickBooks so adding a receipt should be simple, I have incurred other costs such as: Web design and my waste licence. I presume I can follow the same procedure there with the expenses providing I have the relevant receipts / invoices.

    I was reading Director Loans can be a way of paying yourself £1000 tax free by charging interest to the company? This is a way of increasing your personal tax free allowance.

    @DavidWH , I agree with you although not many customers want to hand over money before the job has been completed. For larger more complex jobs I would but for the majority I’ll collect payment after job completion.

    Thanks again for everyone’s responses
    Posted: Nov 10, 2018 By: DirectorToby Member since: Nov 9, 2018
  6. Scalloway

    Scalloway UKBF Legend Free Member

    14,494 3,101
    Can you give a source for that?
    Posted: Nov 11, 2018 By: Scalloway Member since: Jun 6, 2010
  7. dotcomdude

    dotcomdude UKBF Regular Full Member

    243 31
    It wasn't me that posted that, but company owners that pay themselves the optimum salary can enjoy £5,000 of tax-free interest on loans made to their company (source).
    Posted: Nov 12, 2018 By: dotcomdude Member since: Jul 27, 2018
  8. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    2,765 328
    You need to think about protecting the customer deposits... They really should be paid into a separate client account held on trust for the customer unless and until the job is completed.
    Posted: Nov 12, 2018 By: Lisa Thomas Member since: Apr 20, 2015