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Loan from employee to employer

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There is a lot of info about employers lending money to employees. But I have come across an odd case of an employee lending money to their employer. 

It is for over £50k so not an immaterial amount. Although I believe it will be repaid in a short time, perhaps a month or two. 

I am sure they will not have any formal arrangement between them so no interest is being charged. 

Any pointers towards potential tax implications to beware of? 

As for why they have done this without even telling me in advance, the employee is good friends with the owner so he is just doing a favour to help cashflow. I am tempted to treat this as a loan from the employee to the owner of the business and then a shareholder loan to the business 

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Melchett
By thestudyman
05th Oct 2021 14:03

I feel for you. Has the friend lent to the owner directly (which would have been the preferred route) or straight to the company?

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Replying to thestudyman:
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By harpsong
05th Oct 2021 14:08

Straight to the company. Not confirmed yet, but might have been through his own company

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Replying to harpsong:
By johngroganjga
05th Oct 2021 14:39

If it's a loan to the company why do you say that you are tempted to treat it as a loan to the company's shareholder? That would be completely wrong wouldn't it?

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Replying to johngroganjga:
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By harpsong
05th Oct 2021 14:50

I am tempted to treat it as a loan from employee to the shareholder of the company and then from the shareholder to the company.

I thought that with no agreements in place for the loans it would be the simplest way. essentially it will be seen as a shareholder loan. And then where the shareholder got the money from is his problem.

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Replying to harpsong:
By johngroganjga
05th Oct 2021 15:13

There must be an agreement - just not one in writing presumably. You need to find out what the agreement is, not just guess. Ideally, you would ask the lender who they thought their debtor was, and then ask the shareholder in the company if they agreed.

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Replying to johngroganjga:
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By harpsong
05th Oct 2021 15:19

It is one of those clients that will just tell me to do what needs to be done to make it right.

They always want to follow the rules, they just don't consider that any rules might exist until it is too late.

So the original question really is to ask for any potential advice or implications I may not have thought of

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Replying to harpsong:
By johngroganjga
05th Oct 2021 15:44

I have already given you the question you need to ask. If you are denied access to the lender, ask your client whether the lender is his creditor or the company's. It's not hard.

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Replying to harpsong:
paddle steamer
By DJKL
05th Oct 2021 15:51

What about the lender's position, your client's view is all very well but hardly definitive, right for who?

He/She might believe they have lent to the company or lent to the individual. They might suffer loss if one or other becomes insolvent before they are repaid. Reflecting the contract correctly (consensus ad idem springs to mind) is a very clever idea to mitigate your own risk of reflecting the transaction incorrectly.

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Replying to harpsong:
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By wingman22
06th Oct 2021 08:01

harpsong wrote:

Straight to the company. Not confirmed yet, but might have been through his own company

So we don't who either the lender or the borrower are... These to be determined before anything else.

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By Truthsayer
05th Oct 2021 18:42

You should treat this the way it appears, unless there is positive evidence to the contrary. If the lender paid the money directly to the company bank account, then there is no prima facie reason to treat it as being a loan to the director. I suspect the lender and director did not think about who was receiving the loan, as most people don't think about their personal companies as being different from them.

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Replying to Truthsayer:
By johngroganjga
05th Oct 2021 20:37

Yes but surely the accountant preparing the accounts of the company needs to make them think about who the company’s creditor is, even if it has not crossed their minds before. That is what we accountants do.

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Psycho
By Wilson Philips
05th Oct 2021 21:06

I’m not sure why such a song and dance is being made about this. The question was simple - are there any tax implications? The simple answer, as things stand, is “no”.

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Replying to Wilson Philips:
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By Hugo Fair
05th Oct 2021 22:19

Whilst I agree ... the problem is that OP actually asked about "*potential* tax implications" which could take many different forms depending on the currently unknown facts, let alone depending on future unknown actions!
So, avoiding the 'how long can a piece of string be' element, hence my agreement with you ... especially since likelihood of getting sensible answers, from the parties to a transaction that appears to be undefined, are taking on the look of hen's teeth.

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Replying to Hugo Fair:
Psycho
By Wilson Philips
05th Oct 2021 22:34

Agreed. I completely skipped over the ‘potential’. OP says that loan is likely to be repaid in a matter of months so my response was based on that happening. But potentially it won’t be and potentially lots of other things might happen, or not happen.

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Replying to Wilson Philips:
Psycho
By Wilson Philips
06th Oct 2021 08:16

I did also use the words “as things stand” deliberately.

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By harpsong
06th Oct 2021 08:55

Thanks for all the answers, It has helped me explore what things I should be asking and how to proceed. My main aim was to get a bit more focus on how to approach the situation

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