Interest on loan to co
Discussion
For self-assessment.. say I have lent a company money (as a director), and the company is repaying it at a rate including interest.. how is this handled on the self-assessment tax return?
If I make a profit on the investment, I assume that counts as income? How do I offset this against the interest rate that I am paying on the loan?
If I make a profit on the investment, I assume that counts as income? How do I offset this against the interest rate that I am paying on the loan?
There are specific and strict rules covering this situation - both for the company and the individual.
The Company
The company repays the loan on a regular basis. That part of the repayment that relates to the capital is offset against the loan balance and gradually reduces the amount owed.
If the company is paying interest on the loan to the director, the interest is posted to the profit and loss account as "Loan Interest Paid" and the company will receive Corporation Tax relief on that interest (as it would for any interest it pays which is related to a loan it took out for business purposes.
HOWEVER, the company is supposed to deduct Income Tax at source on the interest it pays to directors AND it is supposed to pay the tax deducted on this interest to HMRC on a calendar quarterly basis using a special tax form called a CT61Z.
The Individual
The individual is required to show the interest he received from the company in the "Other Interest" section of the Self Assessment tax return. As the company will have already paid tax at source on this interest, the individual will only have extra Income Tax to pay on this interest if they are a higher rate tax payer.
The Company
The company repays the loan on a regular basis. That part of the repayment that relates to the capital is offset against the loan balance and gradually reduces the amount owed.
If the company is paying interest on the loan to the director, the interest is posted to the profit and loss account as "Loan Interest Paid" and the company will receive Corporation Tax relief on that interest (as it would for any interest it pays which is related to a loan it took out for business purposes.
HOWEVER, the company is supposed to deduct Income Tax at source on the interest it pays to directors AND it is supposed to pay the tax deducted on this interest to HMRC on a calendar quarterly basis using a special tax form called a CT61Z.
The Individual
The individual is required to show the interest he received from the company in the "Other Interest" section of the Self Assessment tax return. As the company will have already paid tax at source on this interest, the individual will only have extra Income Tax to pay on this interest if they are a higher rate tax payer.
Edited by Eric Mc on Wednesday 30th December 08:06
You can claim (as a personal self assessment tax matter) interest taken out personally to invest in a limited company - either in the form of buying shares in the company or a direct loan to the company.
The company must come under the definition of a "close company" - most smmall companies do but you should check the definitions just to be sure.
The company must come under the definition of a "close company" - most smmall companies do but you should check the definitions just to be sure.
So as always I leave it to the last minute and forgot all about this loan business. Oops.
The loan was set up a while back and we never did any of the CT61 etc. If I just structure it as straight repayments with no interest, can I still claim the interest paid under the "Qualifying loans" section of the SA return ?
The loan was set up a while back and we never did any of the CT61 etc. If I just structure it as straight repayments with no interest, can I still claim the interest paid under the "Qualifying loans" section of the SA return ?
Yes.
You CAN claim the interest on the loan YOU are repaying to the bank.
But you should also be DECLARING as income on your self assessment tax return the interest you are being paid by the company.
You have also breached company tax regulations by not accounting for the Income Tax that should have been deducted at source by the company when it paid the interest to you.
You are expsong yourself to two avenues of enquiry by HMRC. The company could be investigated for failing to complete CT61Z fotrms and paying tax on a quarterly basis and you could be investigated for declaring interest on a loan from a company that has not being processing the interest payments properly.
You CAN claim the interest on the loan YOU are repaying to the bank.
But you should also be DECLARING as income on your self assessment tax return the interest you are being paid by the company.
You have also breached company tax regulations by not accounting for the Income Tax that should have been deducted at source by the company when it paid the interest to you.
You are expsong yourself to two avenues of enquiry by HMRC. The company could be investigated for failing to complete CT61Z fotrms and paying tax on a quarterly basis and you could be investigated for declaring interest on a loan from a company that has not being processing the interest payments properly.
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