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Can a company lend money to another company with partial common shareholders?

Can a company lend money to another company...

Company A lends company B £30,000 as working capital

Company A is owned by Red and Blue (two people)

Company B is formed and owned by Red 18%, Blue 39%, Yellow and Green

Is there any problem with this structure?

Thanks

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08th Jul 2013 14:40

Yes Company A can lend money

Yes Company A can lend money to Company B if it wants to.  Why do you think it might not be allowed to?

If I were Red or Blue I would want Company A to charge interest on the loan.  If I were Yellow or Green I would want the loan to be interest free.  Has the question of paying interest on the loan been considered?

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By davidgh
08th Jul 2013 16:26

zero interest

Thanks

The loan is agreed as interest free. Repayment priorities for B (to A) are more contentious

It was suggested that this could be a way of investing in another venture and avoiding personal or corporation tax.

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By davidgh
08th Jul 2013 16:29

is it a directors loan?

The loan amount is £40,000.

Are there any issues with the amount and potential tax liabilities arising please

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08th Jul 2013 16:34

No a loan to another company in which a director is a participator is not treated as  a loan to the director.

How does the loan avoid tax?

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By davidgh
08th Jul 2013 16:42

Is company to company loan with common participants avoiding tax

Is it a possible method of transferring profit to a more risky vehicle without paying either corporation tax or income tax by withdrawing the money as a dividend from Company A and then making a personal loan or investment in Company B?

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By davidgh
08th Jul 2013 16:47

Control of Company B

Red and Blue also jointly have control of Company B

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08th Jul 2013 16:52

Well I agree that as compared with the directors of A taking the cash out of A as a dividend and putting it into B as a loan it saves tax on the dividend.

But how does it save corporation tax?  

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By davidgh
08th Jul 2013 17:03

corp tax

Well I don't think it should if treated properly! They may be in for a nasty surprise when they do their accounts

I suspect A will treat it as a cost and not register the loan asset properly. Will their accountants spot it!?

I am pretty sure they don't realise they will have to pay corp tax on the loan amount in the year they lend it.

 

 

 

 

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08th Jul 2013 17:06

Don't follow.  Why will they

Don't follow.  Why will they have to pay corporation tax on the loan in the year in which they lend it?

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By davidgh
08th Jul 2013 17:10

Much appreciate the conversation John

That is my question - apologies - when will the accrue corporation tax on the money they lend?

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to SteLacca
09th Jul 2013 09:55

Don't understand

davidgh wrote:

when will the accrue corporation tax on the money they lend?

I'm afraid I don't understand the question.  Can you clarify?  Making a loan to another company is essentially a non-event for tax purposes.

 

 

 

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By davidgh
08th Jul 2013 17:12

I thought there was an issue with the same 'person' (two people) in control of both companies and lending between them?

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By davidgh
10th Jul 2013 09:56

Tax treatment - outgoing loans

Do they not have to pay tax on the profit in Company A, before they lend it to Company B that they also control as seed capital?

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10th Jul 2013 10:01

There is no connection

... between Company A paying corporation tax on its profits, which it must do in the usual way, and lending to or investing its surplus retained earnings after tax in Company B.

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10th Jul 2013 10:03

Company A will of course pay tax on any profit it makes.  Any amount lent, to company B or elsewhere, will not of course be a deduction in computing its profits for tax purposes.

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10th Jul 2013 10:04

What?

They will pay tax on profit in Company A - why did you think they would not?

Beaten by John! Again!

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By dgodda
30th Aug 2013 13:34

Lending Personal money via Company A

Can I invest my own money (as a director) into Company A interest free which in turn then loans the money to Company B (also a director) with interest.

What are the implications, if any, of doing this?

And do I need special written agreements between the 3 parties?

Thanks.

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21st Feb 2018 13:26

my company has lent money to my sons ltd company
how do I show this in my accounts

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to colemanbillc
21st Feb 2018 13:52

Have you been stewing over this for 5 years?

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to andy.partridge
21st Feb 2018 14:10

While racking up fines at Companies House presumably.

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to colemanbillc
23rd Feb 2018 14:41

As a debtor, probably with a related party transaction note that your accountant will advise you about.

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