Can directors charge interest on loans offered to Ltd co?

Can directors charge interest on loans offered to Ltd co?

10:22 AM, 6th March 2020, About 2 years ago 5

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As a director of a Limited company can I charge interest on loans offered to my company and what is the allowable interest Permitted by HMRC?

Many thanks. Malcolm

Editors Note: From HMRC >> https://www.gov.uk/directors-loans/you-lend-your-company-money

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

If you charge interest

Interest you charge your company on a loan counts as both:

  • a business expense for your company
  • personal income for you

You must report the income on a personal Self Assessment tax return.

Your company must:

  • pay you the interest less Income Tax at the basic rate of 20%
  • report and pay the Income Tax every quarter using form CT61


Comments

by Neil Patterson

10:26 AM, 6th March 2020, About 2 years ago

Hi Malcom,

Please see my editors notes in the above article.

by Neil Patterson

14:23 PM, 6th March 2020, About 2 years ago

There is no mention in the HMRC notes of a maximum interest rate, but I suppose the limiting factor is they will sting you for income tax, which is greater than corporation tax so in for a penny in for a pound for HMRC!

by Jireh Homes

18:26 PM, 6th March 2020, About 2 years ago

There should be a justification for the company borrowing money from the director and the interest rate should be comparable with commercial rates. Otherwise HMRC may take the view the loan is a "tax dodge".

by steve p

13:30 PM, 7th March 2020, About 2 years ago

Dont forget you have a personal interest allowance £500 if your a 40% tax payer, £1000 if your a 20% tax payer.

Interest counts as an allowable expense for the company so its definitely worth using up your interest allowance if you have not elsewhere. It could also be worth transferring savings from a savings account to isa's or premium bonds to free up your interest allowance for payment from your company.

Remember the company is a separate legal entity to yourself, you must treat the company in that way, although it might be beneficial to you personally to charge the company a higher interest rate than commercially available it will be argued this is not in the best interests of the company hence why you should not charge more than a commercial rate.

Remember also that any mortgage taken out on your house or loan taken to loan to the company, that interest can be claimed as an allowable expense against your personal tax liability. Also worth noting that this is outside of S24 (Confirmed to me by HMRC) Its a loophole in S24 as the loan is not a BTL mortgage its a company loan hence outside S24. 🙂

by Jerry Adam

12:53 PM, 23rd August 2021, About 9 months ago

What is a VAT Return?
VAT stands for Value Added tax, and the companies that have registered for VAT with HMRC are liable to pay VAT. The condition to register for VAT is based on threshold set by the HMRC. If your taxable income exceeds £85,000 in thirty days period, then it is compulsory for you to register for VAT. You can also register voluntarily if you are sure that your income in the next 30 days period will exceed £85,000. The VAT return can be based on monthly, quarterly, or annual schedule. VAT includes the input which is the sales and output which is expenditure. The comparison of input and output value is the VAT that is payable.


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