I'm not great on tax, so would appreciate some guidance...
I have a client who set up a limited company, and is just starting out as an electrician. He's trying to purchase a van and called me today to run something by me. He's being told by the bank and the garage that he'll struggle to get any finance or a loan in the businesses name given the company is so new.
If he ends up having to take something out personally, can it still go through the business? It seems an odd way to do it, but at the moment, he's struggling to see another option... I'm not sure how HMRC would view it...
If he can raise half the money that he needs (even if it means loaning it) the bank is normally willing to front the other half if he has a sound business plan (hint, hint. There be money in that last sentence!!!!!).
Does he have equity such as in a house that he would be willing to use as a guarantee against the loan? I appreciate that he may not want to do this but if he's always got the option to take out a personal loan to clear the debt then the house is not really at risk and it's simply a means of taking a loan through the business which would be his most cost effective option re interest payments.
He could of course loan the money himself and give it to the business as a capital injection.
HMRC are not at all happy with businesses paying for a personal loan even when one can show that such was for a legitimate reason.
Also, if the business pays interest to the owner on a loan made to it then you need to fill out a CT61 and you end up paying tax on the interest received even though it was taken out for a business reason!
Best option all around is if he can get the loan (or at least half of it) through the business.
Well, that's my take on it but sure others will have other suggestions... Now get writing that business plan and filling your own coffers
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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.
A business loan would make things easier but if thee is no option but to get a personal loan then so be it.
The funds raised will be put into the company through the directors current account and the van bought in the company (the compay can then claim the capital allowances on the van).
The loan is then personal and must be paid personally, but you can always draw a regular amount from the business to cover this as a directors current account repayment (the account will run out before the interest is paid however).
With regards to the interest on the loan, this can't be claimed as a deduction in the company but if it is a qualifying loan your client should be able to claim a deduction on their person tax return. See http://www.hmrc.gov.uk/helpsheets/2010/HS340.pdf
