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How to transfer funds between companies

Hi all,

I have a general question regarding the most efficient way to transfer funds between 2 ltd companies.

My situation is that I am the sole director at a small ltd company. I am looking to set up a new ‘buy to let’ company which will focus on purchasing properties and renting them out.

I want to use the capital in my current company to fund the new property company. Is it best to start a completely new and separate ltd company for the property business? Or would it be advantageous to have 1 of the companies as a ‘parent company’ of the other?

In effect, the current company makes approx 100k pre-tax profit. I want to transfer 50k into the property company. If I transfer the 50k before the end of the company tax year, will company 1 pay corporation tax on 100k or 50k?

Is there a way to make the 50k transfer come off the profit of company 1,thus reducing the corporation tax bill?

What would be the most efficient way to move the 50k into the new company?

Any ideas / suggestions would be most welcome. Thanks  

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Loan between companies

In my experience, assuming that both companies are UK based, there are NO PROBLEMS with a loan arrangement between two limited companies.

The transfer of funds ideally would be direct from one company to the other - if done as a cheque to a director from the first company then a cheque from the director to the second company there are quite likely to be "overdrawn directors loan account" issues to contend with.

 

 

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Loan between companies

Thanks DMGbus

Do you know if the corporation tax bill is reduced for the company which lends the money (ie, since they have made the loan then their profits are reduced by the amount of the loan)?

Eg, if the original pre-tax profit is 100k. The company loans 50k. Will the corporation tax bill calculated on 100k or 50k?

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A loan has no effect on profit

Giving a loan neither reduces profit for the giver nor increases profit for the receioient of the loan - unless interest is charged in which case the interest is extra income for the giver of the loan and is an expense of the recipient of the loan

 

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Don't forget the associated companies rule

If you control more than one limited company, then the profit limits for corporation tax will be divided by the number of companies you control.

Put it this way, if you control two limited companies, then the small companies profit limit (after which the tax goes up) is £150,000 for each company - not £300,000.

Make sure you really need two companies for the businesses!

M

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