A director can borrow £10,000 from their company interest free. However, there are strict anti-avoidance rules which mean that the company has to pay.
As the director shareholder of a company the net value of assets belongs to you, however, in law the company is a separate person.
This means when you take money out there are tax implications.
When borrowing money from the company, special tax rules apply.
You can borrow up to £10,000 interest free without any tax or NI charges.
As long as you never owe more than £10,000 you won’t pay tax on the loan.
If the loan goes above £10,000 then it becomes a taxable benefit.
Borrowing money withing this limit has no tax implications for you, however, the company will become liable to pay a tax charge until the loan is repaid.
The charge is equal to 32.5% of the money borrowed if you still owe it 9 months after the company’s financial year end.
There are also rules preventing you from borrowing more money from the company to repay the original debt.
If you repay the debt but borrow more within 30 days then HMRC will ignore the repayment.
Also, if you borrow from elsewhere to pay off the loan then the repayment will be ignored.
This second point only applies if you borrow over £15,000 to pay off the debt.
You can borrow up to £10,000 from your company interest free for 21 months without any tax implications for either party.
After the 21 month period, use temporary funding, for example a loan from a friend, to repay the company. Then, after 30 days, you can borrow the money from your company again to repay the temporary loan.