Loan to a friend from LTD

[sal]

Thanks for your concerns guys. I consider this move to be very low risk.
As you know there is a risk involved in going to the toilet as well. But we all go.

My question was merely about the legality of it.
As always very little help.

It's perfectly legal, scout's honour. If anyone comes knocking on your door in the future just send them my way I will straighten it up...

Does that help?

[WTFH]

Thanks for your concerns guys. I consider this move to be very low risk.
As you know there is a risk involved in going to the toilet as well. But we all go.

My question was merely about the legality of it.
As always very little help.

Here's the help:


It's a VERY STUPID IDEA


Many things are "legal" but that does not make them "a good thing to do".
You can legally drive at 60mph on country roads in the UK. Many roads, particularly B roads in Scotland, if you drive at 60, you'll only be on the road for a mile or two.


Lending a large sum of money to a friend isn't a good idea. It will put an enormous strain on the relationship.
Lending to someone who you later reveal isn't a friend but a family member is an even worse idea.
Making the loan out of your LTD is a crazy idea, but based on your history of questions, my suspicion is that you are trying to do that to avoid paying tax, except you will never tell us that, you'll just complain about the attitude of some on here.


If you want help, give ALL the facts, don't lie, don't try to hide stuff.
If you don't like the help you're being offered, pay for professional help. They will also want to know all the facts, and then they will tell you it's a very stupid idea.

[TheCyclingProgrammer]

Thanks for your concerns guys. I consider this move to be very low risk.
As you know there is a risk involved in going to the toilet as well. But we all go.

My question was merely about the legality of it.
As always very little help.

Nonsense. There have been numerous replies outlining the technical issues that could arise from this course of action: how to deal with the BIK/interest issue, the s455 tax issue etc. But rightly there have been numerous warnings about the riskiness of this course of action. Feel free to make your own judgement though.

Just remember that if you go down the directors loan route (and then personally lend it) rather than the commercial loan route (which as somebody said could be viewed suspiciously by HMRC as its to a relative) and the loan remains unpaid 9 months after your company year end you will need to pay the equivalent amount of corporation tax on the loan and you won't get it back until 9 months after the year in which the loan is repaid.

[MrMarkyMark]

FTFY

As always very little help, which is completely all of CUKs fault, as I never get the answers I actually want.

[northernladuk]

It's a VERY STUPID IDEA

Many things are "legal" but that does not make them "a good thing to do".

isn't a good idea.

even worse idea.

crazy idea

a very stupid idea.

Just to summarise that post..

[kolata]

than the commercial loan route (which as somebody said could be viewed suspiciously by HMRC as its to a relative)

Exactly my question: will this be viewed suspiciously by HMRC if there is 3% interest and the loan is repaid in full within 9 months of year's end. I haven't received any short clear answer.


I have described the case fully. Nothing hidden here and still some people speculate about tax evasion etc.

[WTFH]

Exactly my question: will this be viewed suspiciously by HMRC if there is 3% interest and the loan is repaid in full within 9 months of year's end. I haven't received any short clear answer.


I have described the case fully. Nothing hidden here and still some people speculate about tax evasion etc.

OK, if there's nothing dodgy, suspicious or illegal, then take the money out of your personal account and lend it to your mother in law. Then there's no issue with your company. Avoid all the grief by making it a personal loan, not a company loan.

Or, to put it another way, why are you wanting to loan the money from your company?

[sal]

Exactly my question: will this be viewed suspiciously by HMRC if there is 3% interest and the loan is repaid in full within 9 months of year's end. I haven't received any short clear answer.


I have described the case fully. Nothing hidden here and still some people speculate about tax evasion etc.

But you started with a "friend" which turned out to be MIL - two completely different cases when it comes to arising HMRC suspicions.

[MrMarkyMark]

Exactly my question: will this be viewed suspiciously by HMRC if there is 3% interest and the loan is repaid in full within 9 months of year's end. I haven't received any short clear answer.


I have described the case fully. Nothing hidden here and still some people speculate about tax evasion etc.

A quick Google search yielded this:-

Loan from LTD company to family member | UK Business Forums

The tax legislation provides for a tax charge when a company makes a loan to "a participator" which normally means a sharehold or an associate of a participator, such as a relative. A relative is normally parent, grandparent and further back, child, grandchild or remoter descendant, brother or sister. There are other classes of participator, including business partners or trustees.

If that happens, then the company has to pay additional corporation tax at the rate of 25% of the loan amount.

That tax can be recovered as the loan balance is reduced. HMRC will not pay interest for the period that it has your money.

There is an exception for loans made in the ordinary course of business, but that would seem not to apply in this case

Basically if you lend somebody who is caught by this legislation £100,000 you have to "lend" HMRC £25,000.

[TheCyclingProgrammer]

Exactly my question: will this be viewed suspiciously by HMRC if there is 3% interest and the loan is repaid in full within 9 months of year's end.

If that's what happens, then no, there is nothing suspicious. The suspicion could arise IF the loan doesn't get repaid. Something you don't really have any control over.

If you're that confident it will be repaid, then record it as a directors loan (so you will pay CT on the outstanding amount if its repaid late) and then loan it to your MIL personally.

EDIT: MrMarkyMark makes a good point, a loan from company to a relative of a director or shareholder can be treated as a loan to participator anyway so the s455 issue will be applicable regardless of whether you arrange the loan directly between YourCo and MIL or via you personally. This should mitigate the issue of suspicion of tax avoidance because s455 exists to stop this from ever being an issue.

To summarise: I can't think of any legal reason why you can't do this as long as you are aware of the issues regarding interest/BIK/s455. This still doesn't make it a good idea.