A Loan From Your Own Company
Newsletter issue - July 07.
If you want to borrow some funds temporarily from your own company, there is not much in practice that will prevent you from doing this.
However, company law prohibits a company of any size from making loans to its directors, unless those funds are needed by the director to pay expenses incurred on behalf of the company, or to allow the director to perform his duties as a director. The loan must also be approved by the shareholders in a general meeting and be repaid within six months of that meeting. There is a general exemption from these conditions where the amount of the loan does not exceed £5,000.
So you can borrow up to £5,000, but you also need to think about the tax consequences however much you actually borrow. If you do not repay the loan within nine months of the company's year end, the company will have to pay an extra corporation tax charge equivalent to 25% of the loan. That charge will be set-off against the next corporation tax payment due after you finally repay the loan.
When you borrow more than £5,000 there will also be a benefit in kind tax charge due from you personally, if you do not pay interest on the loan of at least 6.25%. This tax charge applies however long you borrow the funds for: 5 months or 5 years.