Can I loan money to my company?

Directors’ loan accounts are an option for you should you experience cash flow problems within the company.
It is always preferable for the company to incur and pay its own expenses, even if this creates a loss in the accounts, rather than for you to bear company expenses out of your own taxed income. However, you may occasionally experience cash-flow problems within the company, and if at any time the company does not have sufficient funds to pay all its expenses, you can lend the money to the company, and repay yourself at a later date.

Such a transaction will be recorded in a director’s loan account. To do this, you should make a bank transfer to the company for a round-sum amount, and at the same time make a bank transfer for the exact amount of any expenses owing to you by the company. This crystallises the expense as a company expense, and the exchange of funds makes it much easier at a later date to understand exactly what happened.

As and when the company has sufficient funds to repay the loan, or even part thereof, you should simply make a bank transfer or write out a company cheque for the amount of the loan and pay this into your personal bank account. Please bear in mind that, in exceptional circumstances, an inspecting VAT officer may ask you to prove that the funds you have loaned to the company are not in fact income from fees on which VAT is due, so it is possible that you may be required to demonstrate where the money has come from.

For any director’s loan it is worth recording the bare details e.g. amount, term, purpose, and that it is interest free – for accounts purposes and for the avoidance of any doubt subsequently.

You should not pay yourself interest on a director’s loan, since this has complicated tax implications. Remember too that you are only allowed to borrow amounts greater than £10,000 from the company if a resolution has been passed by the shareholders. 

Amy FowlerCan I loan money to my company?