Lending my limited company money to pay myself

Lending my limited company money to pay myself

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Hi
 
I am in the first year of running a limited company as sole director and its accounting period ends 31st April 2015. As yet I have not taken any salary from the company and have no other source of income. I therefore have not yet used any of my personal income tax allowance for 2014/15.
 
In mid March there will be approximately £2k cash available in the company with a further £2k becoming available in mid April. Am I able to lend my company £2k so I can pay myself a £4k annual salary in March 2014 below the LEL (£2k cash in business +£2k loan) and then when the £2k comes into the business in mid April, withdraw that as repayment to my loan??
 
I am expecting the business to be able to pay me a lot more in 2015/16 so would plan to set up PAYE in May and pay myself the full personal income allowance and take the rest in dividends at the end of the year after corporation tax. I therefore would prefer, if possible, that the £2k I know is coming into the business in mid April went against my otherwise unused 2014/15 personal allowance rather than the following year especially as the work will have been done in this tax year, it's just the payment won't have been made by my client.
 
Am I allowed to do this? 
 
Many Thanks!

Replies (7)

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By zebaa
22nd Feb 2015 10:09

Yes.

Simple answers is yes. However you may want to be paid a wage at the limit of your personal income tax allowance, or the NI threshold, to take full advantage. This could all be a simple accounting transaction with the money owed just showing as a loan from the director in the accounts - no need for pound notes. This may lead to your company making a loss but such losses are allowable against future profits.

 

 

 

Thanks (1)
RLI
By lionofludesch
22nd Feb 2015 10:20

Yes - no problem.  Some care needed to ensure that it's a good idea but the principle is sound enough.

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Out of my mind
By runningmate
22nd Feb 2015 11:20

PAYE scheme

Why not set up PAYE with HMRC now, pay yourself the salary (by making the appropriate accounting entries - no money need change hands) & submit RTI information now (i.e. before 5 April 2015).

Then if it is queried by HMRC you can prove the salary decision was taken & put into effect in 2014/15 (& not dreamed up afterwards).

The only issue then would be whether the salary figure was justified by the work you did - which, as you are sole director, should not be a problem.

RM

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Replying to Cardigan:
RLI
By lionofludesch
22nd Feb 2015 11:35

Makes sense

runningmate wrote:

Why not set up PAYE with HMRC now, pay yourself the salary (by making the appropriate accounting entries - no money need change hands) & submit RTI information now (i.e. before 5 April 2015).

Then if it is queried by HMRC you can prove the salary decision was taken & put into effect in 2014/15 (& not dreamed up afterwards).

The only issue then would be whether the salary figure was justified by the work you did - which, as you are sole director, should not be a problem.

RM

If you're going to set up a scheme anyway, this makes sense.  Irrefutable provenance.

Thanks (1)
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By deanoricho
22nd Feb 2015 14:20

Thanks a lot everybody for your advice. I've been pretty much working full time for my company for the last year on specific invoiced projects so I'm sure I can justify the salary. It's only now that money is starting to come surplus to what I've spent on start up costs/equipment so I wanted to take it as salary in this tax year rather than it become corporation taxed profit of the business.

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Replying to lionofludesch:
Logo
By ArsalanShah
23rd Feb 2015 01:27

Invest in yourself

deanoricho wrote:

Thanks a lot everybody for your advice.

Accounting and taxation are complex areas and consequences can be severe sometimes even for minor mistakes and especially when ignorance is no excuse.You should seriously consider seeking professional advice from some local accountant,if you want to grow and dont want to end up paying huge tax bills.

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Replying to [email protected]:
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By deanoricho
23rd Feb 2015 14:59

I will get one

Thanks, I agree and intend to get an accountant as soon as there is money to pay one which will be the 2nd trading year but I'll still get them to look over my 1st annual accounts before submitting. I was just looking for advice now on my personal tax allowance but overall the money made by the business this year is so small I can't see how any huge tax bills could arise whatever I've done!

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