Hypothetical - director lending money to company

[Lefty]

Say a Ltd company has one director and that one director has sole ownership of the company and the company wants to borrow money to expand.

Is there any reason why the owner can’t personally lend money to his company and the company pays him back (plus interest) over a period of time?

The interest is taxed in the normal way I guess, the company also gets tax relief on the interest payment. Right? Or am I completely missing something?

[Eric Mc]

No problem whatsoever - although the director will need to declare the interest he receives from the company on his personal Self Assessment tax return and pay any Income Tax arising.

There is no obligation for the company to pay any interest.

[Lefty]

Thanks Eric, that’s what I thought. Business loan rates are pretty high so it would be justifiable paying a similar or slightly lower rate of interest to the director?

[Eric Mc]

You can do what you like, it's your company.

[Lefty]

Well, it’s not yet :wink: