Close company private loan interest claim

Poodle
Poodle Registered Posts: 711 Epic contributor 🐘
in General accounting discussion
Hi,

The situation.

Small close company with two directors. One director has a private loan at 5% pa from an unconnected friend for the director to use in the business.

The loan went straight into the company and credited the DLA.

The question

Is it possible to claim the interest , part or in full on this loan as a business expense when not all of the loan has been used up in the business and potentially the credit balance on the DLA could be drawn back by the director as a repayment to himself?

I am sure the answer is no, but I do recall a method of doing this by reporting to HMR&C on a quarterly basis. But to do so may not be cost effective since we are talking about <£10K

Comments

  • Jmann
    Jmann Registered Posts: 68 Regular contributor ⭐
    You mentioned that he did not use full loan in the business. Did he loan the full amount to the company? If yes, and the company is using the fund for the trade than, I would say he can claim full amount. However you may want to get second opinion on claimable.

    There are two ways, director can claim the interest from the company. As long as the loan is for the business purpose.

    1. Claim the same cost of the interest from the company and declared both Interest paid and received in his personal self assessment. This way he is not worse off.
    2. Just claim the cost of loan in his self assessment under s292 of ITA-2007.
  • Jmann
    Jmann Registered Posts: 68 Regular contributor ⭐
    Also to add my previous post, as you mentioned correctly, if company pays interest, then they have to deduct tax at basic rate from the interest payment and file a return CT61 and pay quarterly to HMRC.
  • Poodle
    Poodle Registered Posts: 711 Epic contributor 🐘
    Jmann wrote: »
    Also to add my previous post, as you mentioned correctly, if company pays interest, then they have to deduct tax at basic rate from the interest payment and file a return CT61 and pay quarterly to HMRC.

    Thank you Jmann

    I thought as much. This is a potential new customer and the previous accountant has not been processing the quarterly return for the client although claiming the interest through the books as a deductable business expense

    So will have to get the grey matter going to untangle this when the books and clearance letter response arrive:)

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