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Does the company have to have retained profits to loan money?

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    Does the company have to have retained profits to loan money?

    I know that it is not legal to issue dividends unless you do so from retained profits.

    However I am in a situation currently where I am a little short (~9k or so) from the house deposit and I would rather not sell any shares to get there (as they were bought at attractive prices during the dips).

    I am planning to issue dividends this month after which there will be cash left in the company account (which is last years corp tax + VAT). Can I loan myself the 9k? I am still in contract so the shortfall would be accummulated back within a month or so. There would be no issue with paying VAT or corp tax later down the line.

    #2
    Originally posted by cannon999 View Post
    I know that it is not legal to issue dividends unless you do so from retained profits.

    However I am in a situation currently where I am a little short (~9k or so) from the house deposit and I would rather not sell any shares to get there (as they were bought at attractive prices during the dips).

    I am planning to issue dividends this month after which there will be cash left in the company account (which is last years corp tax + VAT). Can I loan myself the 9k? I am still in contract so the shortfall would be accummulated back within a month or so. There would be no issue with paying VAT or corp tax later down the line.
    Yes you can.
    You become a debtor so the company has that £9k on the books still.
    See You Next Tuesday

    Comment


      #3
      Bad ideas aside then yes. It's not due to be paid until the figures have been submitted and calculated.

      If you are completely happy you can repay it when it's due and willing to suffer any consequences then fill your boots.

      Not the advice I'd give a newbie but as your a seasoned contractor and more than aware of stuff I'd say go for it.
      'CUK forum personality of 2011 - Winner - Yes really!!!!

      Comment


        #4
        Originally posted by northernladuk View Post
        Bad ideas aside then yes. It's not due to be paid until the figures have been submitted and calculated.

        If you are completely happy you can repay it when it's due and willing to suffer any consequences then fill your boots.

        Not the advice I'd give a newbie but as your a seasoned contractor and more than aware of stuff I'd say go for it.
        I have liquid assets (~80k or so) which I can use to cover this debt if I am out of contract and in a pinch but my contract is pretty bulletproof.

        Thank you for the advice.

        Comment


          #5
          You could draw up a simple loan agreement between yourCo and yourself and charge a commercial rate of interest, say base rate + 1%.

          Comment


            #6
            Originally posted by ladymuck View Post
            You could draw up a simple loan agreement between yourCo and yourself and charge a commercial rate of interest, say base rate + 1%.
            I don't think this is needed under 10k right?

            Comment


              #7
              Originally posted by jayn200 View Post
              I don't think this is needed under 10k right?
              Correct but it's creating a commercial loan rather than a directors loan in which case it can go on for as long as he wants. A directors loan has to be paid 9 months after the current tax year he's in.
              'CUK forum personality of 2011 - Winner - Yes really!!!!

              Comment


                #8
                Does the company have to have retained profits to loan money?

                Originally posted by northernladuk View Post
                Correct but it's creating a commercial loan rather than a directors loan in which case it can go on for as long as he wants. A directors loan has to be paid 9 months after the current tax year he's in.
                Is there such a thing?

                Maybe it’s me being cynical but I would have thought any company loan to a controlling individual would be classed as a director loan regardless of the terms.
                It’s credit without a credit check therefore preferential by its very nature.


                Edit: got me thinking now. If I can have a commercial loan like this, I could lend myself £200k of company money, at 1% over a 15 year period instead of bothering with a mortgage. Sounds too good to be true. Is it?
                Last edited by Lance; 17 January 2021, 10:45.
                See You Next Tuesday

                Comment


                  #9
                  Originally posted by Lance View Post
                  Is there such a thing?

                  Maybe it’s me being cynical but I would have thought any company loan to a controlling individual would be classed as a director loan regardless of the terms.
                  It’s credit without a credit check therefore preferential by its very nature.


                  Edit: got me thinking now. If I can have a commercial loan like this, I could lend myself £200k of company money, at 1% over a 15 year period instead of bothering with a mortgage. Sounds too good to be true. Is it?
                  There is a whole thing about beneficial loans:

                  Beneficial loan arrangements (480: Chapter 17) - GOV.UK

                  Lots to read

                  You'd probably have to lend at the offiical rate (currently 2.5%) rather than 1%
                  Rates and allowances: beneficial loan arrangements - GOV.UK

                  Comment


                    #10
                    Originally posted by ladymuck View Post
                    There is a whole thing about beneficial loans:

                    Beneficial loan arrangements (480: Chapter 17) - GOV.UK

                    Lots to read

                    You'd probably have to lend at the offiical rate (currently 2.5%) rather than 1%
                    Rates and allowances: beneficial loan arrangements - GOV.UK
                    Yes that is a lot of reading.

                    2.5% isn’t that bad though when it’s going to a company I own.
                    See You Next Tuesday

                    Comment

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