Paying Corporation Tax

mowdiewark

I am a contractor operating as Limited company and I am due to pay my corporation tax next month. I have the money set aside in my business bank account for this, but if I pay the Corporation Tax using my personal credit card instead of the money I have set aside, does this cause any problems?

The reason I want to do this is that I am planning to extend my house and rather than take out a secured loan, I was thinking of using my personal credit card to pay the corporation tax, then paying the builder with the money set aside for the Corporation Tax.

I know this probably sounds a bit 'dodgy' or reckless, however, I am just shifting money about. I am very reluctant to take out a secured loan and my view is that a credit card is less risky than a secured loan.

Any advice is appreciated.

redpete

The secured loan might be more risky (although I'd be interested in what risk you are worried about) but it would be a lot less expensive than paying credit card interest.

Need more info to give meaningful advice - such as the cost of the extension, how much you need to borrow, the credit limit and interest payable on the credit card, your income and other liabilities...

InsideInsurance

Yes you could pay the tax with your personal card and then withdraw the money from the company to cover your expense.

Remember that HMRC charges a fee for paying by credit card and then you'll also be paying interest on your credit card which is normally much higher than the rate of a loan.

Do your sums to ensure this is the most cost effective way of doing things

mowdiewark

Thanks for both replies. My circumstances are that my extension will cost around £40k. I have around £10k savings I can use and will therefore have to come up with £30k. My corporation tax bill will be around £8k. If I use that £8k it means I'll only need a loan for £22k which is unsecured loan Territory.

Other factors are that being a contractor, it can be very difficult to get loans of any kind (even with 5 years worth of accounts and a triple A credit rating). Also, equity in my house will limit the amount I can borrow on a secured loan. I am currently credit card debt free and I am confident I can manage the credit card debt by transferring the debt to other credit cards and making large payments.

The exercise isn't really to save money, but to come up with the cash to pay my builder.

Aquamania

mowdiewark wrote: »

I am a contractor operating as Limited company and I am due to pay my corporation tax next month. I have the money set aside in my business bank account for this, but if I pay the Corporation Tax using my personal credit card instead of the money I have set aside, does this cause any problems?

The reason I want to do this is that I am planning to extend my house and rather than take out a secured loan, I was thinking of using my personal credit card to pay the corporation tax, then paying the builder with the money set aside for the Corporation Tax.

I know this probably sounds a bit 'dodgy' or reckless, however, I am just shifting money about. I am very reluctant to take out a secured loan and my view is that a credit card is less risky than a secured loan.

Any advice is appreciated.

Whilst it is never a good idea to mix up the finances of two separate legal entities, the taxman won't care where the money comes from. (and I certainly don't expect the builder will either )

Depending on the exact timings, either you can lend the business money (in the form of credit from a personal credit card) which it then repays.
Or the company can lend you the money (to pay the builder) which you then repay by funding it's corporation tax.
(Be careful in this latter case as getting the timing wrong could produce a tax liability, effectively for a tax free loan)

Either way, it seems you don't have the money to pay the builder. Probably the cheapest form of borrowing (save for any short term, introductory offers) is to obtain a mortgage for the extention.
Of course that will be secured against the property and why it is cheapest. If you are adament you do not want any charge against the property, then consider a non-secured loan. It will cost more than a mortgage and will usually be a shorter term, but it will be cheaper than a credit card.

InsideInsurance

mowdiewark wrote: »

Other factors are that being a contractor, it can be very difficult to get loans of any kind (even with 5 years worth of accounts and a triple A credit rating).

How is it difficult? I am also a contractor and have never had problems getting credit (bar MBNA who have something against me). My working status is Employed, I put my employer as Inside Insurance Ltd, job title is director, worked there 4.5 years, income is gross salary + dividends.

Never been asked to provide company accounts etc as my company is a separate legal entity to me and its not asking for credit.

trailingspouse

Well, to me it does indeed sound dodgy.

I'm assuming your builder doesn't take credit cards? This seems odd for a company that obviously takes on large builds.

My preference would be to pay the corporation tax out of the funds in the business, and pay the builder from your personal money. KISS and all that.

And re loans to contractors - in the three years since we set up the business, OH and I have taken out a joint mortgage, he's taken out a car loan, I've taken out a car loan, and I've taken out a loan to pay for a kitchen.

I think there's more going on here than meets the eye.

InsideInsurance

trailingspouse wrote: »

And re loans to contractors

There is a good chance that they are making the mistake of saying they are self employed which legally is incorrect (though a few financial providers do say that someone who is the major shareholder of their employer should count themselves as such).

That said, on £8k corporation tax there was £40k profit. Based on rough estimates they are on the equiv of £48k PAYE and so £30k unsecured loan would be fairly challenging to get

mowdiewark

trailingspouse wrote: »

Well, to me it does indeed sound dodgy.

I'm assuming your builder doesn't take credit cards? This seems odd for a company that obviously takes on large builds.

My preference would be to pay the corporation tax out of the funds in the business, and pay the builder from your personal money. KISS and all that.

And re loans to contractors - in the three years since we set up the business, OH and I have taken out a joint mortgage, he's taken out a car loan, I've taken out a car loan, and I've taken out a loan to pay for a kitchen.

I think there's more going on here than meets the eye.

Absolutely nothing more than meets the eye here. If I wanted to embezzle money, etc I'd be setting up offshore accounts and/or doing a runner without paying tax! I would just do it and certainly wouldn't be wasting time on this forum! Setting up a 'normal business' and being a contractor is not the same thing. I've successfully had loans approved for driveway, bedroom, and car.

However, I lost out on the sale of a couple of houses in the last few years because of problems with getting mortgages (car loans/other finance is different because they don't look into your affairs with a fine tooth comb) and they base the amount you can borrow on the value of your house.

I only have about 20% equity in my home. Trying to find a mortgage lender that will lend to a contractor who has more than 80% LTV on their house is very difficult. Type in 'contractor mortgages' in Google and you'll find it's not just me with this problem. Gone are the days when anyone could just self-certify their own income and get a mortgage (the reason why the world is in a recession now).

The last broker I went to came up with only one lender who was prepared to lend me what I required, but he wanted to charge me around 4 or 5k broker fee!

Kinda off-topic here, but being a contractor and LTD has it's benefits (paying less tax, claim for expenses, higher rates, flexibility, etc), but when it comes to things like loans, mortgages, etc, it's a real pain. I guess contractors live by the sword and die by the sword! I'm sure most contractors would agree with me. Can't have it both ways. :-)

mowdiewark

InsideInsurance wrote: »

There is a good chance that they are making the mistake of saying they are self employed which legally is incorrect (though a few financial providers do say that someone who is the major shareholder of their employer should count themselves as such).

That said, on £8k corporation tax there was £40k profit. Based on rough estimates they are on the equiv of £48k PAYE and so £30k unsecured loan would be fairly challenging to get

You're pretty spot on with your maths! Profit was slightly higher though :-). SOunds like either you work for the HMRC or are a contractor yourself!

Also most non-secured loans (personal loans) only go up to £25K - hence the reason why I want to use the cash in my business bank account.

Maybe you're right about specifying my employment status. It's always a grey area when it comes to employment status as being limited isn't normally an option you can select.

Aquamania

mowdiewark wrote: »

Absolutely nothing more than meets the eye here. If I wanted to embezzle money, etc I'd be setting up offshore accounts and/or doing a runner without paying tax! I would just do it and certainly wouldn't be wasting time on this forum! Setting up a 'normal business' and being a contractor is not the same thing. I've successfully had loans approved for driveway, bedroom, and car.

However, I lost out on the sale of a couple of houses in the last few years because of problems with getting mortgages (car loans/other finance is different because they don't look into your affairs with a fine tooth comb) and they base the amount you can borrow on the value of your house.

I only have about 20% equity in my home. Trying to find a mortgage lender that will lend to a contractor who has more than 80% LTV on their house is very difficult. Type in 'contractor mortgages' in Google and you'll find it's not just me with this problem. Gone are the days when anyone could just self-certify their own income and get a mortgage (the reason why the world is in a recession now).

The last broker I went to came up with only one lender who was prepared to lend me what I required, but he wanted to charge me around 4 or 5k broker fee!

Kinda off-topic here, but being a contractor and LTD has it's benefits (paying less tax, claim for expenses, higher rates, flexibility, etc), but when it comes to things like loans, mortgages, etc, it's a real pain. I guess contractors live by the sword and die by the sword! I'm sure most contractors would agree with me. Can't have it both ways. :-)

So you already have a type of secured lending i.e. a mortgage

Presumably when you extend your home, the property will be worth more (and hopefully the extention will cost less than the value it adds)