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Trading company, loan to third party implications?

£15K loan to unconnected third party (friend) over 3 years, the company has 150K retained profit

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What would be implications if a company loans 15K to third party (person), to be repaid in 3 years time. The 3% interest would be charged and payable  monthly (or quaterly) on the outstanding amount. The loan contract would be drawn and the loan is expected to be fully repaid in 3 years time.

I believe 3% interest is above the current market interest rate. The company is a trading company and has retained profits of over £150K.

Are there any tax implications on the company, on its directors or on the third party?

I have searched this site and HMRC guides but cannot find this exact case. 

Many thanks.

Replies (10)

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By David Ex
15th Aug 2021 16:12

blox wrote:

Are there any tax implications on the company, on its directors or on the third party?

Yes, there will be tax implications for some or all. What implications will depends on various factors most of which you haven’t referred to.

If you have retained profits of £150,000 and can lend £15,000, could I suggest you spend a small amount on some professional advice.

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Replying to David Ex:
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By blox
15th Aug 2021 16:35

I have the accountant but wanted to do some research before talking to them.

I have been member for over 6 years and have had 4 "Thanks", and this is my first ever question, I hoped this deserve some goodwill here.

Thanks (1)
Replying to blox:
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By David Ex
15th Aug 2021 17:06

blox wrote:

I have the accountant but wanted to do some research before talking to them.

I have been member for over 6 years and have had 4 "Thanks", and this is my first ever question, I hoped this deserve some goodwill here.

Not sure 4 thanks in 6 years confers any special status. I’ve had more than 4 today!

I’m also not sure what response you were expecting. No-one is going to detail the tax implications of every possible permutation of facts.

Asking someone for the answer is not doing some research. Tax is complicated which is why it takes years of study and experience to master. I can’t see why anyone would spend time providing a detailed analysis for free for you to discuss with someone you will presumably be paying to do the same.

Can you see how it looks?

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Replying to blox:
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By Paul Crowley
15th Aug 2021 17:31

In Mar 2020 you referred to having a client when looking at CJRS
Most responders assume that having a client meams that you are an accountant in practice
Not unreasonable as most responders are accountants and tax advisors
It is after all accountingWeb
Most questions relate to tax or the things done by accountants

Thanks (2)
Replying to blox:
Stepurhan
By stepurhan
16th Aug 2021 08:38

blox wrote:

I have the accountant but wanted to do some research before talking to them.


Why?

This is a genuine question. The whole point of having an accountant is so you don't have to research tax and accounting questions. More importantly, they will know more about your personal circumstances. It would be very easy for someone on here to give you a well thought out and technically correct answer that was nevertheless wrong due to relevant information you didn't think to post.

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Replying to stepurhan:
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By blox
16th Aug 2021 09:08

Here is a genuine answer:

Because I do not want to be accused of money laundering or something like this.
I have been reading this forum regularly and what often comes up is "Is this the attempt at money laundering" and "Shall I fill SARS?"

I do not want to put my accountant - with whom I have been for over 15 years - in a position where, because of my question, they think I may want to do money laundering and they feel obliged to fill SARS. I want to take the most advantages of the tax system without breaking the law. But as I said, reading these forums it appears that sometimes just asking the wrong question your accountant or saying "Could you do X?" may trigger the SARS report.

So I like to be informed before I approach my accountant. If something is no-go, I do not bother even if I have originally thought of doing it.

For many things I have found answers on this excellent forum.

And even though I am not accountant, I do have a degree that includes accounting, just not from this country and from many years ago.

Regarding the Client, it was non-paying client. I was helping someone who could not afford the accountant. The one they did have fleeced them off money pretending that they are accredited by HMRC, their letter of engagement had "rubber stamp" with the crown on it, they charged them a lot, but doing incorrect (illegal) VAT returns, not reporting CIS etc. This left them with 30K HMRC bills they could not afford. They were foreigners and they genuinly thought that by engaging the accountant who speaks their language and who is "crown approved" will make sure they did all by the books. But the "accountant" was a real scumbag and they themselves did not know UK tax law.

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Replying to blox:
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By Leywood
16th Aug 2021 09:35

''Because I do not want to be accused of money laundering or something like this.'']

If you are not breaking any laws, then you cannot you be guilty of money laundering.

Simple as that.

As already stated, just asking someone to answer your question, including on here is not doing 'research'.

That is just attempting to get Accountancy advice for free, instead of paying for it appropriately or in fact doing some proper research (you will understand the term surely as you say you have done a degree).

With the question levied as it is, then a new Accountant would consider the money laundering position until you explain and prove what is going on, but an existing Accountant should already know enough of your background to know whether this is a genuine transaction or not, or will again go on that fishing expedition. If they have to report you and you have nothing to hide then what exactly are you worried about?

Your reasons just dont wash.

This is not what this forum is for.

4 thanks, with at least one comment from someone who disputed the accuracy of your information sharing, it appears. People use the thanks button to get folk to come back on to see the response comments, so I wouldnt go setting much store in them, unless of course you are the likes of some members who have hundreds/thousands.

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Replying to blox:
Stepurhan
By stepurhan
16th Aug 2021 10:49

blox wrote:
But as I said, reading these forums it appears that sometimes just asking the wrong question your accountant or saying "Could you do X?" may trigger the SARS report.


Can you link to examples of that, because in my experience the conversation normally runs like this.

Client "Can I do X?"
Accountant "No you can't because of A/B/C" (possibly including money laundering reasons)
Client "Thanks for the advice. I won't do X then"

They are Suspicious ACTIVITY Reports. No activity, because their advice stopped you doing X, nothing for them to report on.

An accountant would only make a report if, despite having been told not to do it, they believe the client will do it anyway. This generally only comes up when the client decides to disengage from their accountant immediately after asking the question.

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By David Ex
15th Aug 2021 16:13

Duplicate

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By Paul Crowley
15th Aug 2021 16:22

Can I borrow as well?
3% unsecurred is a bargain
BBLs are 2.5% as a government giveaway

Director lending to his mate?
Companies tend not to have mates

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