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Making a private loan to a company

Making a private loan to a company

I am considering making a further loan to a close friend for her start-up business. The situation is complicated as I am sub contracting services to this company, but I will not be a direct employee, director or shareholder. I have already loaned some money directly to the limited company, which took the form of purchasing stock myself which was then invoiced to the company at cost (in my particular line of work I often come across items that are good and very cost effective as stock for my friends business, and am able to buy these for cash as generally I am buying from private individuals as I travel around in the course of my work). VAT is not an issue on the stock purchased as it was bought without VAT, and I personally am not registered for VAT either. I work as a self-employed person and do not have a limited company.

My questions are 

a) would it be better to loan to the director personally than to the limited company? (risk is not an issue I am really asking from the point of view of tax efficiency, least complications in explaining things if HMRC ask questions etc)

b) how best can I ensure that any repayments of loans made or invoices paid by the company are not viewed as new income by HMRC or the CSA (as my ex has involved them in getting maintenance)?

c) Am I going to run into potential problems by buying more stock and invoicing the company in the same way, treating it as a loan, as opposed to loaning the company (or director) cash via a bank transfer?


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04th Jan 2013 11:56


If you have invoiced the company for the stock items, then that is a sale (income) in your hands, not a loan. The fact that the invoice remains unpaid does not make it a loan, it is simply an unpaid trade debt.


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to shamilkaria
04th Jan 2013 12:22

Confuson - thank you. Obviously what has already gone through the books is fixed, but i can live with that. Basically I will have two transactions one for the purchase and one for the sale which effectively show no profit, so I guess no big dramas there anyway. We are talking about secondhand goods not new, so the purchase side is not always well documented but obviously I have not magicked the goods out of nowhere...

For future - I assume then that I am better to loan money to the company which then gives it back to me to buy the product as their agent? It is perhaps slightly more complicated as the transactions are cash.

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