Company Loan to another company
Discussion
Hi all,
My accountant is useless so I thought I would seek advice from you guys.
I run a small ltd company (contractor) and Im also a 50:50 partner in a pub. Obviously COVID has really affected the pub and it's finances and I would like to loan the pub business some money via my limited company. THe pub business as applied for various loans and grants which its now waiting to hear about however as a plan b I want to loan it some cash.
How does one do this ? What do I need to do / show in my ltd accounts ? Can I sent a time period ? I would like to loan it £20K for 5 years, so do I need to alert the HMRC? Do I need to charge interest ?
Any help would be gratefully recieved.
My accountant is useless so I thought I would seek advice from you guys.
I run a small ltd company (contractor) and Im also a 50:50 partner in a pub. Obviously COVID has really affected the pub and it's finances and I would like to loan the pub business some money via my limited company. THe pub business as applied for various loans and grants which its now waiting to hear about however as a plan b I want to loan it some cash.
How does one do this ? What do I need to do / show in my ltd accounts ? Can I sent a time period ? I would like to loan it £20K for 5 years, so do I need to alert the HMRC? Do I need to charge interest ?
Any help would be gratefully recieved.
Assuming your company's Memorandum and Articles of Association allows it to make loans, then there is no legal reason why it cannot do so.
Obviously, the loan will show as an "asset" in your company's balance sheet and will appear as a "liability" in the balance sheet of the pub.
If you are a partner or a director or are a connected person with a partner or director of the pub, then, in your company accounts, you will need to include a note to the accounts stating the fact that the loan is to a business which shares directors/partners/connected parties with the company.
If the pub is run through a limited company, then it must also make a "connected person" disclosure in its accounts.
There may also be a requirement to disclose details of the loan under a "Commitments" note and there may also be a requirement to split the balance and show the balance split between "Liabilities due under one year" and Liabilities due over one year".
If there is any form of legal charge connected with the loan, that needs to disclosed in the accounts and may also need to be reported to Companies House.
Obviously, the loan will show as an "asset" in your company's balance sheet and will appear as a "liability" in the balance sheet of the pub.
If you are a partner or a director or are a connected person with a partner or director of the pub, then, in your company accounts, you will need to include a note to the accounts stating the fact that the loan is to a business which shares directors/partners/connected parties with the company.
If the pub is run through a limited company, then it must also make a "connected person" disclosure in its accounts.
There may also be a requirement to disclose details of the loan under a "Commitments" note and there may also be a requirement to split the balance and show the balance split between "Liabilities due under one year" and Liabilities due over one year".
If there is any form of legal charge connected with the loan, that needs to disclosed in the accounts and may also need to be reported to Companies House.
Thanks Eric.
The pub isnt a limited company. My brother and I own it hence the 50/50. i take no wage from it though.
You mentioned my ltd company's memorandum ? As far as I can remember I pretty much set up a default ltd company for IT contracting. To be able to loan does this come as standard in this type of setup, or does it have to be requested / stated additionally ?
Reading your reply, I put down that I lent XXX £20K in my books stating what my relationship is to the business. I get the pub to sign something stating it has the loan for x period and store that away. On the pub books it states it now has a debit to my ltd company ? Yes ?
What about interest ? Obviously I want the interest to be as low as possible. If the loan is for 5 years does that mean any additional paperwork / requirements ?
Where is the `commitments` section you mention ?
The pub isnt a limited company. My brother and I own it hence the 50/50. i take no wage from it though.
You mentioned my ltd company's memorandum ? As far as I can remember I pretty much set up a default ltd company for IT contracting. To be able to loan does this come as standard in this type of setup, or does it have to be requested / stated additionally ?
Reading your reply, I put down that I lent XXX £20K in my books stating what my relationship is to the business. I get the pub to sign something stating it has the loan for x period and store that away. On the pub books it states it now has a debit to my ltd company ? Yes ?
What about interest ? Obviously I want the interest to be as low as possible. If the loan is for 5 years does that mean any additional paperwork / requirements ?
Where is the `commitments` section you mention ?
The fact that the loan is to a partnership - of which you are a partner, does mean that you could be opening yourself up to a S455 Penalty Corporation Tax charge (loans to director) and PAYE Benefit in Kind tax charges (and penalties if you don't declare the loan correctly on a P11D).
Be VERY careful.
Be VERY careful.
I see what you mean, you're saying that someone could look at this as a indirect directors loan to escape taxes etc.
Surely though if I list it accurately in my accounts, have some form of loan paperwork stating duration, amounts, etc, and that the pub's accounts has this loan listed then it's more legit ?
if I take the money out as a dividend then I'm hit with taxes etc which I dont want to do. if I do a director loan then it needs to be repaid within a year, when considering how COVID is going isnt possible.
So company to company loan is the only way forward.
Surely though if I list it accurately in my accounts, have some form of loan paperwork stating duration, amounts, etc, and that the pub's accounts has this loan listed then it's more legit ?
if I take the money out as a dividend then I'm hit with taxes etc which I dont want to do. if I do a director loan then it needs to be repaid within a year, when considering how COVID is going isnt possible.
So company to company loan is the only way forward.
sbk1972 said:
I see what you mean, you're saying that someone could look at this as a indirect directors loan to escape taxes etc.
Surely though if I list it accurately in my accounts, have some form of loan paperwork stating duration, amounts, etc, and that the pub's accounts has this loan listed then it's more legit ?
if I take the money out as a dividend then I'm hit with taxes etc which I dont want to do. if I do a director loan then it needs to be repaid within a year, when considering how COVID is going isnt possible.
So company to company loan is the only way forward.
A ltd co. loan to another ltd.co will generally not be vulnerable to a S455 Penalty Corporation Tax charge - even if the two companies have common directors.Surely though if I list it accurately in my accounts, have some form of loan paperwork stating duration, amounts, etc, and that the pub's accounts has this loan listed then it's more legit ?
if I take the money out as a dividend then I'm hit with taxes etc which I dont want to do. if I do a director loan then it needs to be repaid within a year, when considering how COVID is going isnt possible.
So company to company loan is the only way forward.
A loan to a partnership in which a director of the lending company is a partner means that the director is receiving a loan from the company of which he is a director. That changes the dynamic completely and could result in the scenario I've mentioned above.
HMRC are well aware that directors can disguise income they receive from their own company as a "loan" in order to escape tax (and NI) so that is why they created S.455.
If you loan it personally it qualifies for Directors Loan ISA, 3 main benefits are:
No tax
You set the ISA interest rate - say 15%
The loan is a preferential creditor so if the pub ultimately folds any recoverable assets come to you first (and any other preferential creditors)
https://www.linkedin.com/posts/rebuildingsociety-c...
No tax
You set the ISA interest rate - say 15%
The loan is a preferential creditor so if the pub ultimately folds any recoverable assets come to you first (and any other preferential creditors)
https://www.linkedin.com/posts/rebuildingsociety-c...
Edited by Mr Overheads on Friday 22 January 14:25
The problem is that the pub is actually "you" (as you are a partner in the pub). Therefore the loan is to you personally so you can put it into the pub project.
HMRC will want their pound of flesh whatever way you extract the money out of your company.
Has the pub applied for a Bounce Back Loan?
Has the pub made use of the SEISS?
Has the pub been using the HMRC Job Retention Scheme (Furlough)?
Why does the pub need a loan?
Is it struggling?
HMRC will want their pound of flesh whatever way you extract the money out of your company.
Has the pub applied for a Bounce Back Loan?
Has the pub made use of the SEISS?
Has the pub been using the HMRC Job Retention Scheme (Furlough)?
Why does the pub need a loan?
Is it struggling?
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