Lending money to own company

Yes, you can lend money to your own company and have the company repay you later. This is a very common arrangement, particularly for owner-managed businesses, and it is perfectly lawful provided certain things are done properly.

How it works:

When you put personal money into your limited company, it creates what is known as a director's loan account. In this case, the company owes you money, so the balance on your director's loan account is in credit. You are a creditor of the company. The company can repay you at any time without any tax consequences to you, because it is simply repaying a debt, not paying you income.

This is the mirror image of the situation where you draw money out of the company and owe the company money, which is where the more complex tax rules under section 455 of the Corporation Tax Act 2010 come into play. When the company owes you, the position is much more straightforward.

Key points to be aware of:

1. Document the loan properly. It is good practice to have a written loan agreement or at least a board minute recording the loan, the amount, and the terms of repayment. This protects you if there is ever a dispute or if the company faces insolvency.

2. Interest is optional but has tax implications either way. You can lend to the company interest-free, and there is no tax issue with that. If you do charge interest, the company can deduct the interest as a business expense, which reduces its corporation tax bill. However, the interest you receive is taxable as savings income on your personal tax return, and the company must deduct income tax at the basic rate (currently 20 per cent) from the interest payments and account for it to HMRC under the CT61 return.

3. Repayment is not taxable. When the company simply repays the capital you lent, this is not income and does not attract income tax or national insurance. It is just the return of your own money.

4. Insolvency risk. If the company becomes insolvent, you rank as an unsecured creditor unless you have taken security. In practice, this means you may not recover the full amount if the company cannot pay its debts. If you are also a director, you should be careful that allowing the company to repay you in preference to other creditors when it is nearing insolvency does not amount to a preference under section 239 of the Insolvency Act 1986, which a liquidator could later challenge.

5. Accounting treatment. The loan should be properly recorded in the company's accounts. It will appear as a creditor on the balance sheet. Your accountant should be keeping the director's loan account up to date.

6. Company law formalities. If your company's articles of association contain any restrictions on borrowing or related party transactions, make sure you comply with them. For most small private companies using model articles, this is unlikely to be an issue, but it is worth checking.

Practical suggestion:

This is one of the most tax-efficient ways to extract money from a company if you have previously put personal funds in. Many directors use this as part of a broader remuneration strategy: they lend money to the company during startup or when cash is tight, and then repay themselves later when the company is profitable, alongside a combination of salary and dividends.

If the amounts are significant, it is worth having your accountant confirm the entries on the director's loan account are correct and that the loan is clearly documented, particularly if there are other shareholders or directors in the company.