Loaning Money to your own Company

Loaning Money to Your Own Company as a Director

14/09/2021Business , Finance , Limited Company

When you set up your business, there are many initial costs, like accountancy fees, insurance premiums, stationery, and website packages. To pay for all these costs, loaning money to your own company is a good idea while you are waiting for payment from your first client. Through a director’s loan, you can support your business.

It means to provide your own money to a limited company to support numerous projects and objectives. Though it is a helpful approach to provide funds, it is also a decision that must be properly examined and planned out. Therefore, you should be aware of the following things if you consider lending money to your limited company.

 

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Loaning Money to Your Own Company

Why would your Own Company require a Loan?

Your limited company would require a loan because of the following reasons:

  • You are setting up your new company, maybe with the other directors, and you would like to provide some funding for the initial costs.
  • Your company currently is not making a profit, and you want to invest some operating capital into it.
  • You don’t have enough funds to pay for any asset or equipment right now, and you want to buy it through the company.

 

Check Legal Aspects Before Loaning Money to Your Own Company

Before loaning money to your own company, double ensure that the company’s Articles of Association permits the company to take money from the directors and whether there are any restrictions on these loans imposed by the Articles. If you are unclear about what is allowed for your company by the Articles of Association, you should be aware of it before proceeding.

The next step is to make a loan agreement after ensuring that the loan is allowed. The loan agreement should specify the repayment schedule, size and date of the loan, and the agreed rate of interest.

 

It is usually advisable to record a loan agreement properly! Our professionals at CruseBurke provide affordable solutions for all your business problems! Contact us now!

 

What is a Director Loan Account?

The director can make a loan to the company in other forms, along with making in the form of cash. For instance, in case a director purchases goods, services, or equipment on behalf of a company, or if he forgoes payments of salary for a certain time, then this will also depict a loan to the company and must be documented in the DLA (Director’s Loan Account).

 

Can a Director Lend Money to a Limited Company?

Yes, a director can lend money to a limited company. It is preferable rather than taking a commercial loan from your bank. All loans are recorded in the director’s (loan) accounts. If a director borrows money from a limited company, it will also be recorded for accounting purposes in the director’s account.

Furthermore, it is useful to record all kinds of loans such as deferred salary payments, payments for goods or services, or cash loans directors make to the company. All these loans are documented in DLA as credits, and when the company files its annual legal accounts, they will be stated as current liabilities on BS (Balance Sheet).

 

The Key Point to Consider When Lending Money to a Limited Company

Following are the key points that need to be considered when lending money to a limited company.

  • By making a director’s loan to your company, the amount (as a creditor) will be included on a company’s balance sheet.
  • Your company can pay off the loan at any time if the director decides. Until the amount shown on the company’s balance sheet is fully paid, it will decrease.
  • Ensure that there are enough funds in the company to encounter its current liabilities, e.g. tax, if you want the company to pay off the loan at any time.
  • When thinking about any aspect of loaning money to your company and how you execute loan transactions, remember that limited company directors are required to always behave in the company’s maximum interests.

 

Wrapping Up

We will conclude our blog by saying that loaning money to your own company is preferable rather than taking a loan from the bank. There are several rules to consider while lending or borrowing money to your company. However, keeping in mind those rules, we can say that the director’s loan is a complex area and requires strict accounting and bookkeeping. So, make sure you have a professional for dealing with all the aspects of a director’s loan.

 

Our cost-effective Chartered Accountants in Croydon are experienced in dealing with all aspects of directors and company loans! So, reach us now for customized packages!

 

Disclaimer: This blog contains general information about lending money to your own company.


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how do you pay yourself from a limited company
How to Pay Yourself from a Limited Company?

13/01/2025Limited Company

Many self-employed individuals or freelancers in the UK choose limited companies for their businesses. There are several possible reasons to choose a limited company, but the primary one is that a limited company is a separate entity from its own. This protects the directors and owners in the case of their assets, and there are fewer chances of risk involved. However, paying yourself as a director of a limited company is complicated. So make sure you know the fundamental facts regarding how you pay yourself from a limited company in the UK. Today’s comprehensive guide is based on how do you pay yourself from a limited company. Continue reading to gather more information on this. Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help about how to pay yourself from a limited company. How Do you Pay Yourself from a Limited Company? Legally, four possible ways will make you safe even if you take out money from your limited company as a director. This answers how do you pay yourself from a limited company, including Reimbursement of expenses, Salary, Director’s loan, and Dividend payments. These ways are listed and explained in the following. 1- Salary The most common way to pay a director from a limited company is to pay a small specific amount as a salary from the company account. However, this will be a legal way to do if the company is register with HMRC. You will also have to be concerned about national insurance and other obliged taxes being deducted from the employee and employer’s salary before it is distracted. Moreover, the personal allowance is  £12,570 and you can take out this amount without having to be obliged for any kind of tax. The level of your tax obligations will also depend on the amount of your salary. First £12,570 at 0% Between £12,571 and £50,270 at 20% Between £50,271 and £125,140 at 40% Over £125,140 at 45% In the case of national insurance obligations, the gain depends on the level of salary you’re getting, which will explain how much you will pay as an employer or as an employee in this listed company. 2- Dividend payments If a limited company in the UK is earning profits, it is possible to pay shareholders in the form of dividends. This is to remember that the amount of dividends is also taxed just like the case of salary. However, the applicable rates in this regard are given as the Basic Rate is 8.75% and the Higher Rate is 33.75%. The additional Rate is 39.35% in this regard. The overall income level will decide the category of tax rate you are obliged to pay. The good news is that there is no national insurance to be paid on the amount you get as a dividend from your limited company in the UK. 3- Director’s loan Sometimes you need more money for business or personal purposes and the amount of your dividends or the salary you withdraw is not enough. There comes a situation when it is not legally possible to take out money as dividends or salary from the limited company. In such a business situation you can transfer the money from the business account to your account as a direct loan. However,  unlike the amount of dividends or salary, this amount works as regular loans and you need to repay them to the business. Also, interest is charged on this amount of loan. The loan amount has to be repaid by the end of the financial year, if not you may face severe consequences in the business. 4- Reimbursement of expenses There are times when you need an amount for the cost related to wholly and exclusively business purposes. You took out this amount but later you can claim this as a business expense based on it being a business cost amount. This will lead to enjoying the benefit of business tax relief, you will also enjoy the factor of reimbursement personally. Travel costs like business miles, Business Insurance, Equipment, Software costs, and Professional services are a few examples of such costs. It is always a good idea to claim the legitimate expense to give tax relief to your business. In the case of individuals who are working from home, the cost used for business purposes only can also be claimed. The Bottom Line In conclusion, there are several legal ways to know how do you pay yourself from a limited company in the UK. However, being aware of the business circumstances and the legal ways is safe to keep your business away from penalties and unfavourable business situations. Whether you are working in the capacity of a director or a shareholder, you can withdraw the money from the company account as a large portion, a director loan or dividends if your company is earning profits. This will help you to adhere to the legal ways. However, in the case of a director loan, you will also have to pay the interest amount when the time comes to repay the loan. This is usually before the financial year ends. In case of being a beginner, you must seek professional help from our experts. So get in touch now. Reach out to our intelligent and clever-minded guys to get the answer to your queries in the UK, we will get to your answers quickly. We will help to decide how to deal with your tax implications. Disclaimer: The general information provided in this blog about how do you pay yourself from a limited company includes text and graphics. It does not intend to disregard any of the professional advice in the future as well.

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