Startup money into a company - Director's Loan the only option?

[d000hg]

When starting a new business and there are some up-front costs, directors/owners typically put a chunk of their own cash (or somebody else's) into the company.

Say you were doing this and needed £50k of your personal savings to get things running, and cover costs until you were break-even. You would want to get that £50k back and you would rather not be taxed on it when you do.
What are the normal ways to do this?

I'm aware of the Director's Loan option, which even allows interest to be charged though I'm not sure if charging yourself interest is particularly sensible?
What other options exist? I suppose you could value your shares at £1000 each at incorporation rather than a more typical £1 but that cost is then locked into the company, right?

If you didn't care about tax efficiency, can you just "gift" the money to the company? Obviously HMRC can get a bit twitchy about people making big transactions between personal/company accounts.

[Paralytic]

Surely this is simple? You lend the company the money. The company has a debt on its books. When possible, the company pays the debt back to you. You could feasibly charge the company interest too (but would have to be market rate or thereabouts).

[Maslins]

Unsure what you're trying to achieve.

Piddly share capital (eg 100 x £1 shares) and director loan for the balance would likely be most common...though I'm thinking for a typical contractor company, where it's maybe £1k put in, not £50k.

The loan can be paid back tax free (same way the company's not taxed when it receives the loan). Theoretically you can pay interest on credit balance director loans...but typically it's more effort than it's worth. Tax needs to be deducted at source (like PAYE on a salary), and whilst the interest will be deductable for the company's CT purposes, it's also taxable income for the individual.

Yes, theoretically you could instead just have lots of share capital (either 1 x £50,000 share, or 50,000 x £1 shares). Like you suggest main downside of this is you can't readily take that money back.

Why would you want to gift money to the company?

[WordIsBond]

Do you have other non-ISA interest coming in? If not, you can have YourCo pay you up to the interest allowance on the director's loan. Market rate, of course.

[Lance]

When starting a new business and there are some up-front costs, directors/owners typically put a chunk of their own cash (or somebody else's) into the company.

Say you were doing this and needed £50k of your personal savings to get things running, and cover costs until you were break-even. You would want to get that £50k back and you would rather not be taxed on it when you do.
What are the normal ways to do this?

I'm aware of the Director's Loan option, which even allows interest to be charged though I'm not sure if charging yourself interest is particularly sensible?
What other options exist? I suppose you could value your shares at £1000 each at incorporation rather than a more typical £1 but that cost is then locked into the company, right?

If you didn't care about tax efficiency, can you just "gift" the money to the company? Obviously HMRC can get a bit twitchy about people making big transactions between personal/company accounts.

err.... The normal way is NOT a loan. The normal way is called capital.
You put £50k into a company. That gets you a share, or some shares. How many shares is up to you. I'd go for 50,000 shares for the sake of simplicity.
The company is now worth £50k.
If it grows that's called a capital gain. can you see where this is going?
When you close the company, or get the capital back there's no tax as it's not a capital gain, it's the startup capital.

This is really basic stuff. I mean the basicest of basic stuff of running a LTD.
I know most contractors setup the company with just £1, but it's the same thing.

[d000hg]

err.... The normal way is NOT a loan. The normal way is called capital.
You put £50k into a company. That gets you a share, or some shares. How many shares is up to you. I'd go for 50,000 shares for the sake of simplicity.
The company is now worth £50k.
If it grows that's called a capital gain. can you see where this is going?
When you close the company, or get the capital back there's no tax as it's not a capital gain, it's the startup capital.

This is really basic stuff. I mean the basicest of basic stuff of running a LTD.
I know most contractors setup the company with just £1, but it's the same thing.

So I invest £50k as startup capital and the company spends it. Let's say in year 1 the company has profits of £50k or enough that 50k is not needed and sits in the account. Great, I can get my initial investment back that I took from my personal savings, the company doesn't need it now. Oh, but HMRC take 20% because it's profit?
That's why I ask if it should be put in as capital or a loan. There is no plan to sell the company and we certainly don't want that 50k 'trapped' until we wind it down - we view it as being a loan by any other name but we are loaning our money rather than approaching a lender.

You say it's the basicest [sic] thing but the other replies don't agree with you it's the bestest way to go. And I'd say for contractors it's not basic. Most of us put in pretty much the minimum capital because we have virtually no start-up costs. Our Ltds are for the most part vehicles to trade through.

[d000hg]

Why would you want to gift money to the company?

I was just wondering if you could. If it would HAVE to be injected via share purchase or a loan. Clearly it's an inefficient proposition.

Do you have other non-ISA interest coming in? If not, you can have YourCo pay you up to the interest allowance on the director's loan. Market rate, of course.

Is this worthwhile? I put my own money in because it's needed, and then the company incurs additional costs servicing a loan of my money back to me?

As I recall there are quite strict rules on this - doesn't HMRC actually publish the maximum interest rate rather than allow you to define "market rate"? Do they afford you freedom to defer payments or whatever makes most sense?
Because clearly it is a way to get money out of the company where the company counts it as a cost (no CT) but you count it as personal income (SATR). So I can see people would do that once the company is making money - kind of a no-brainer - but not before perhaps?

[Scruff]

Listen to what Maslin's have to say.

By putting the £50k into Share Capital is not a smart way to do it, since is no longer a loan but forms a long term Capital contribution (the name Share Capital, is a clue). Redemption of the Share Capital is more complicated, since it is not repayable on demand. A Shareholder's / Director's Loan is repayable, on demand, provided that there are sufficient liquid assets. If the Company went into Liquidation, the Share Capital would be "at risk", whereas the Shareholder's / Director's Loan would be a concurrent Creditor (in normal circumstances).

IANYA.

[Lance]

So I invest £50k as startup capital and the company spends it. Let's say in year 1 the company has profits of £50k or enough that 50k is not needed and sits in the account. Great, I can get my initial investment back that I took from my personal savings, the company doesn't need it now. Oh, but HMRC take 20% because it's profit?

No. If it spends £50k, and then makes £50k the profit is zero.

That's why I ask if it should be put in as capital or a loan. There is no plan to sell the company and we certainly don't want that 50k 'trapped' until we wind it down - we view it as being a loan by any other name but we are loaning our money rather than approaching a lender.

You say it's the basicest [sic] thing but the other replies don't agree with you it's the bestest way to go. And I'd say for contractors it's not basic. Most of us put in pretty much the minimum capital because we have virtually no start-up costs. Our Ltds are for the most part vehicles to trade through.

A loan might well be the best. I wasn't offering view on what you should do. You should talk to an accountant for that. I was answering your question of "Startup money into a company - Director's Loan the only option?". It's not.

You're welcome.

[ittony]

So I invest £50k as startup capital and the company spends it. Let's say in year 1 the company has profits of £50k or enough that 50k is not needed and sits in the account. Great, I can get my initial investment back that I took from my personal savings, the company doesn't need it now. Oh, but HMRC take 20% because it's profit?.

Presumably the company could buy some of its shares back from you to return some of the startup capital. Although - capital gains tax.

Come to think of it, why isn't my own limited company buying some of it shares back from me each year, up to my CGT allowance? Why isn't that a thing?