A client borrowed a lump sum of £23k from a friend in order to finance the year he would need to retrain as a driving instructor. This money was used to pay his rent, utilities and living costs for his family while he was training rather than being the cost of the course.
He is now repaying this loan (with interest) and he wants to know if he can offset this against earnings because he insists it is a business loan, rather than a personal one.
Sounds like another example of poor tax planning which is now going to prove costly.
All in all this was not a business loan.
The business did not exist as he was only training in order to start the business. If he had planned properly he would have at least started the business and then done the training.
Also, the nature of the loan was too informal for this to be a business arrangement.
The rest of the answer assumes that this is a limited company.
If the owner had set up the company in advance and the money had been introduced as a loan, perhaps by putting the directors loan account in credit then this could have been considered a business loan even though the payments that the loan funded were business expenses only to the same extent as would be salary payments. (training to change direction is not allowable whereas necessary essential training for a business already making a return would be allowable).
Note also that interest on a directors loan is taxable both on the company at 20% and in the self assessment of the person who gave the loan. You need a CT61 for this which can neither be downloaded or ordered online. I think that you have to phone the Shipley Accounts office to get one.
I'm not yet an expert in this area and others such as Frauke may have fuller responses or may know of case law which overrrides or add's to my answer.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
If only I hadn't put the disclaimer at the bottom I'd have beaten you to the answer.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
