LTD Company using money to fund a startup

[Soul Reaver]

Hi Guys

What is the mechanism for my LTD company transferring funds each month to a startup of mine that is at least at the moment just a sole trader with a business bank account. Once up and running I will make it LTD but at the moment it isn't in this formative stage.

Do I loan it money each month or just transfer it and mark is as business consulting? What is the best way please?

Cheers for your advice

[Tuna]

Why not do it within the Ltd company? What roles/responsibility/ownership are you separating by having a company and a sole trader 'split' the job?

[Soul Reaver]

My LTD company is in a totally different area of trading.

[Eric Mc]

If the company loans money to you personally then the company is lending money to a director. Even if the money is going to be used by the director to set up a sole trader business, it will still be treated as a director's loan from the company with all the ramifications that go with that i.e.

declaration in the company's formal accounts

possible S.455 Penalty Corporation Tax Charge

possible PAYE Benefit in Kind Income Tax charge on the director

[blueg33]

We do this but via a corporate structure with a TopCo at the top that issues loan notes to new subsidiaries

[Soul Reaver]

Blue

Does that mean I setup the new venture as a LTD as a sub company of my main one? Is that how you do it?

[blueg33]

Soul Reaver said:

Blue

Does that mean I setup the new venture as a LTD as a sub company of my main one? Is that how you do it?

Yes exactly that. Wholly owned subsidiary, it ring fences the two entities and you can lend money from one to the other easily using loan notes. I admit that I have a 6 person finance and accounts team that sort all that stuff out, along with a 2 person in house legal team. So you may want to speak with a corporate lawyer.

Edited by blueg33 on Wednesday 3rd May 16:37

[Eric Mc]

All that is possible but you will need to be very on top of both entities and make sure that all the compliance and tax rules are followed.

[Soul Reaver]

And if I just "loaned" money to the sole trader entity it would be classed as a personal loan wouldn't it with all the ramifications of that.

[Tuna]

Soul Reaver said:

And if I just "loaned" money to the sole trader entity it would be classed as a personal loan wouldn't it with all the ramifications of that.

What are the costs that you're needing to cover? Salary, equipment, stock?

[Eric Mc]

Soul Reaver said:

And if I just "loaned" money to the sole trader entity it would be classed as a personal loan wouldn't it with all the ramifications of that.

There are no tax ramifications.

If you have personal funds you want to inject into a sole trader activity HMRC don't have any issues with that.

Obviously, their assumption would be that the personal money you have decided to inject into your sole trading activity would originally have been obtained from some source or activity which would have been declared for tax purposes (if appropriate) at the time that money was originally received by you.

Indeed, if you decided to inject personal cash into a limited company, HMRC would take the same approach.

What they definitely DON'T like is when a director draws money out from a limited company for their own personal use WITHOUT declaring that income from the company as personal income in the form of salary , dividends or some other legitimate instrument.