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Many business owners borrow money from their company rather than pay themselves a dividend or salary.

There are potential taxes to think about and one of them needs to be considered now as we are approaching the deadline for reporting to HMRC for 2013/2014.

As a company owner, if you have not paid interest on a loan, HMRC will expect you to submit a P11d by 9 July 2014 to let them know that you’ve had this benefit.  The calculations will be based on a 4% interest rate on the loan and the borrower will then pay tax on the benefit. If you want to avoid this tax bill, you can instead pay the interest to the company.

But this is not the end of the story!  The company will be liable for a tax charge of 25% on the amount lent to the owner and this needs to be shown on the company’s corporation tax return.  The 25% tax bill can be reclaimed from HMRC once the loan is repaid to the company, but there will be a time delay before this refund will be received.  If the loan is repaid within nine months of the year end it is possible to avoid paying this tax liability in the first place, but please do talk to us about this in  advance if you think it’s going to apply to you.


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