Inter business loans
Discussion
Talking to another one wo/man band today.
She has set up a property company (business B), alongside her primary buiness (business A) and lends any profit from A to B to buy property (it owns 2 flats from which it gets rental income). Business A receives monthly interest payments from B which I presume are liable to CT, except no profit is shown for business 'A' for CT because it is lent straight back to business B. Sounds odd to me.
Not sure what the advantages are, except no corporation tax on business 'A' profits???? But surely business B will cop for CGT?
She has set up a property company (business B), alongside her primary buiness (business A) and lends any profit from A to B to buy property (it owns 2 flats from which it gets rental income). Business A receives monthly interest payments from B which I presume are liable to CT, except no profit is shown for business 'A' for CT because it is lent straight back to business B. Sounds odd to me.
Not sure what the advantages are, except no corporation tax on business 'A' profits???? But surely business B will cop for CGT?
Why should the fact that Company A has made a loan to Company B result in Company A having a loss?
Giving a lone of money to another business or person is not an "expemse" and is therefore not an allowable cost in the profit and loss accounts of a business. Rather, it would be shown as an "Asset" in the balance sheet of the lending company and a "Liability" in the Balance Sheet of the company receiving the loan.
If Company A lends money to Company B, the tax man is not that interested in this information. However, as the same lady controls both companies, notes must be made in the accounts of each company outliningg the fact that such a loan exists and the principal terms on conditions of the loan.
As Company B pays interest to Company A in respect of the loans, Company A now has Interest Income which will be subject to Corporation Tax in Company A. However, it is pretty likely that Company B will be obliged to deduct tax at source on this interest BEFORE it pays the interest to Company A. I wonder is she aware of that?
If Comapny B's main reason for exsitence is owning and renting out property, it is technically an "Investment" company rather than a "Trading" company and will not be eligible to avail of the special Small Trading Company tax bands and reliefs. It will also have to include additional copious note and val;uations in its annual accounts in respect of its properties.
>> Edited by Eric Mc on Friday 24th March 00:15
Giving a lone of money to another business or person is not an "expemse" and is therefore not an allowable cost in the profit and loss accounts of a business. Rather, it would be shown as an "Asset" in the balance sheet of the lending company and a "Liability" in the Balance Sheet of the company receiving the loan.
If Company A lends money to Company B, the tax man is not that interested in this information. However, as the same lady controls both companies, notes must be made in the accounts of each company outliningg the fact that such a loan exists and the principal terms on conditions of the loan.
As Company B pays interest to Company A in respect of the loans, Company A now has Interest Income which will be subject to Corporation Tax in Company A. However, it is pretty likely that Company B will be obliged to deduct tax at source on this interest BEFORE it pays the interest to Company A. I wonder is she aware of that?
If Comapny B's main reason for exsitence is owning and renting out property, it is technically an "Investment" company rather than a "Trading" company and will not be eligible to avail of the special Small Trading Company tax bands and reliefs. It will also have to include additional copious note and val;uations in its annual accounts in respect of its properties.
>> Edited by Eric Mc on Friday 24th March 00:15
I think she did this without taking her acountant's advice as she was expecting him to be unhappy when she told him.
May be she has the 'expenses' bit confused as Eric said.
I think company B are carrying a lot of debt to the bank and she wanted to make that debt hers rather than the company's to the bank.
I thought that had to be a flaw or I would be doing it!
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