Offsetting Ltd Co loss against PAYE tax

dugdale_2

Hi,
I set up a limited company in July 2005 and invested approximately £9,000 of my own money in the business. Unfortunately the business was not successful (I haven't drawn a salary from the company at all) and after paying accountants fees, mileage allowance etc the business will have approximately £6,500 left to repay my directors loan of £9,000. Therefore so far my company has made a loss of £2,500. I have recently returned to full time employment and wonder if there is anyway that I can recoup this loss by offsetting it against my PAYE tax (probably not but worth asking). Could someone guide me on this please.
Many thanks.

Toni_Tax

I believe that you can't claim it. If you had been a sole trader or a partnership then you could have done.

dugdale_2

Thanks Tony, I sort of guessed that would be the answer but thought I'd ask anyway.

h4nym

Was it really a director's loan? If you invested the money as capital, then you may be able to claim some tax relief on the loss. If it's a loan that you had to effectively write off, then yes, there is no relief on that.

H

dugdale_2

h4nym,
Sorry but could you explain the difference between a directors loan or me investing the money as capital please (I used the term directors loan as that's what my accountant called it). When I started my business I needed to purchase materials, pay for advertising etc so put £9000 of my own money into my company bank account to cover the initial costs and want to find the most tax efficient way of reclaimimg as much of this money back.

h4nym

It may be too late to claim back in your particualr instance... but I'll try and explain (and keep it simple - it's dead easy to explain, but quite complex implications!)

Capital is the share capital that was put into the firm to get it off the ground. For example, it was probably one hundred shares of a pound each, making the total share capital £100. That amount of money is relatively fixed. You can mess about with the share capital, but it's a complex process involving advertising, Companies House etc etc.

Being fixed, it's difficult to take it back out.

The balance of your 9,000 was probably in the form of a loan so that the first bits of money that you took out of the firm were not salary or otherwise taxable earnings, but simply the repayment of a loan that you had made to the company. Unless you charged your firm interest, it's not taxable as far as you're concerned. Of course, as a loan, it's easy to take it out of the company once it's generating its own cash flow.

If, however, the whole 9,000 was in the form of share capital, then there are some reliefs available on money invested in a private company. It's worth having a chat with your accountant, but not a long one!

Hope this helps

Hany

dugdale_2

Thanks for that, I'll have a quick word with my accountant next time I see him but as Companies House was not involved in any way when I "invested" the money in my company I think it would be seen as a directors loan.

Dunc6

Unfortunately you will not be able to offset the losses of the limited Company against your PAYE.

The losses in the limited Company will be carried forward, these can only be offset against any future profits.

It may be beneficial for you to keep the Company ticking over preparing Dormant accounts each year if you believe the Company will start trading again. This will result in more Accountants fees but hopefully if you make a profit in the future the losses can be offset.

jas135

Dunc6 wrote:

Unfortunately you will not be able to offset the losses of the limited Company against your PAYE.

The losses in the limited Company will be carried forward, these can only be offset against any future profits.

It may be beneficial for you to keep the Company ticking over preparing Dormant accounts each year if you believe the Company will start trading again. This will result in more Accountants fees but hopefully if you make a profit in the future the losses can be offset.

i would agree with this post ,keep the company "active" ( but with zero turnover) and maybe in the future you may decide to start trading again , and if the company makes a profit you can start taking back your initial "directors loan" .