My partner has started a new business (limited company) for which we have taken a loan out to fund. The loan is a loan to the business, if we charge the business interest at the same rate as we are incurring it on the personal loan do we still need to deduct tax at source?
Replies (8)
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Yes
Afraid so.
Obviously, you'll ultimately be in a neutral position if you charge the same gross interest as you're paying.
Misleading
The thread title's misleading, actually.
It's not the question asked in the body of the post.
Is the best way to achieve this?
I thought this would be a directors loan to the company and as such the way to structure this was that the individual claims Interest Relief on the money leant to the company against personal tax and would not have to charge the company interest? As per SAIM10210 and if so why charge the company interest, is there any reason to do so?
Reasons for charging interest?
The obvious one - the individual may need funds from somewhere to finance the payments to the lender. Interest is probably more tax-efficient than additional salary or dividend.
Why not just draw on Director Loan?
If they need cash to make loan payments they can just withdraw some of the money already leant to the company. Taking interest payments out of company will also deplete company cash so not sure of benefit in doing it that way? That said if they did reduce the loan to company they would have to reduce the personal interest payment offsetable by same amount though. Seems simpler unless good reason not to?
As in reply 1 ....
Yes.
And submit a form CT61.
It's a lot of fuss about probably not much, I'm afraid.