With finance being more expensive, if you have personal savings, consider loaning your own money to your company, instead of borrowing.Set up a loan agreement with your company and then the company can pay a commercial risk rate of interest of ‘say’ 8% to you.
The company will receive corporation tax relief on this paid interest.In this instance, the loaning of money to your personal company should be for a commercial reason, otherwise HMRC may disallow the corporation tax saving.
Quarterly form CT61 will need to be completed and sent to HMRC.This is because the loan interest is being paid to an individual and tax needs to be deducted at source.This tax payment is reclaimed on the Director’s personal tax return.
If the Director is a basic rate taxpayer, then £1,000 of the interest will be tax free.In addition to this, there is the savings rate band of £5,000 which may be available if your other income is less than £17,570.Every £1 earned above your personal allowance (currently £12,570) reduces the savings rate band by £1.The £1,000 ‘personal savings allowance’ can be used in addition to the ‘savings rate band’.Higher rate taxpayers only have £500 ‘personal savings allowance’.
This is a commercial and legitimate way to receive tax free income.
If this is of interest to you then please contact Mark Rose FCCA on 01245 326280.
HMRC rates and allowances may change over time and therefore please seek clarification before taking or refraining from acting.
