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

[Craig@Clarity]

How so?

lol

[Craig@Clarity]

I really think this thread could have stopped at post #2

https://www.contractoruk.com/forums/...ml#post2679082

Kinda, although the interest doesn't have to be at the "market rate" since it's an unsecured loan.

[Craig@Clarity]

Interesting, Craig especially (we can ignore that Lance embarrassed themself and tried to back out )

So a DL has no tax implications if it does not charge interest, interest may be charged and this would be a cost to the Ltd (CT relief effectively) but would attract personal income tax past the allowance on tax-free interest - did I get that all right?

Spot on. Don't let the numbers scare you. Same principal if it was a £100 loaned to the company for a month. You loan it to the company. The company shows it as a "Directors Current Account" of £100. The company has the funds to pay you back a month later, done. Don't need to account for it on your personal tax return or have an effect on the company's profit and loss. If you decide to charge the company interest on the £50k loan, then yes, that interest is treated as interest income on your personal tax return (regardless of whether the company physically pays it to you or credits it to your "Directors Current Account"). You should declare all your interest on your personal tax return and then deduct the personal savings allowance of either £1k or £500.

Oh and I say Directors Current Account from a technical accounting point of view to mean the company owes you money. A Directors Loan Account is where you owe the company money. The number bods will know what I'm on about!

A DL does not count as a loss to the company, or does it? e.g. if it pays back a chunk of DL does that count as a loss affecting CT?

It doesn't. If you loaned the company £50k and the company repaid £10k back to you, that transaction gets netted off against the loan balance i.e. £50k - £10k = £40k. The accounting transaction would be a credit to the bank account nominal and a debit to the directors current account (or DL for your understanding).

You mentioned CT61 which is something I'd get the accountant to do, but my query here is how flexible is all this? When doing a DL to the company, does this have to be formalised officially or just noted as such in the books?
In terms of repayment, I understand no formal loan arrangement has to be made, the company can pay it back as and when it decides?
In terms of interest, would that have to be decided at the start, or can I loan £50k and 9 months later decide the company should start paying interest at 3%, then another 6 months later decide the rate is now 5%? THat seems all a bit lax from financial regulations standpoint, which are so strict these days.

When you do decide that the company should start paying interest on the loan which can be 9 months later if you wish, that is when you should tell Hector that you need to fill in a form CT61. The deadlines for filing these is strict, each quarter and late submissions may generate penalties. It's just a form filing exercise and when you've done it once, it's fairly straight forward. The loan and interest charged doesn't have to be formalised but may need to be noted in the year end accounts under the balance sheet notes. I'd wouldn't recommend changing the interest rate often but if you have a valid motive for doing so and can argue the case, then I can't see why you could increase the rate 6 months later. To keep it simple, perhaps, when you decide you're going to charge the company interest is to set it at say 10% compounded. Keep a little spreadsheet which is formulated and roll the numbers forward.

[d000hg]

...

Nicely explained, thanks. I wasn't sure these days if you could (officially) loan money to your mate without having to go through money laundering and fraud checks but I think that's cleared up:

When you do decide that the company should start paying interest on the loan which can be 9 months later if you wish, that is when you should tell Hector that you need to fill in a form CT61. The deadlines for filing these is strict, each quarter and late submissions may generate penalties. It's just a form filing exercise and when you've done it once, it's fairly straight forward. The loan and interest charged doesn't have to be formalised but may need to be noted in the year end accounts under the balance sheet notes. I'd wouldn't recommend changing the interest rate often but if you have a valid motive for doing so and can argue the case, then I can't see why you could increase the rate 6 months later. To keep it simple, perhaps, when you decide you're going to charge the company interest is to set it at say 10% compounded. Keep a little spreadsheet which is formulated and roll the numbers forward.

So basically it can be totally arbitrary but only really altered quarterly, and for good reason. If I would like to charge interest from day 1 but defer payments until the company is paying me money that isn't the money I lent, that sounds like it is trivial too. I'm not sure if that really makes much sense to do without re-reading the replies above again

[Paralytic]

I wasn't sure these days if you could (officially) loan money to your mate without having to go through money laundering and fraud checks